Have you ever wanted an oasis next to the beach or a cabin in the mountains? You’re not alone; many people have or desire to own a second home. For whatever the use, a second home can be a sound investment.
Over the past several years, second home sales have been increasing. This is likely due to continued low mortgage rates, a strong stock market that encourages consumer spending, and an improving job market allowing for more discretionary funds to be available for large expenditures. As such, a second home can be attainable for even those with medium-depth pockets.
According to NAR (National Association of Realtors), a second home is typically smaller and a significant distance of around 200 miles from the owner’s primary residence. 45% of buyers purchased in beach areas, 19% in the mountains or at a lakefront, and 16% in the country. Of vacation home buyers, over 1/3 plan to use the property for vacations or family gatherings, 16% for future retirement, and 7% for generating income through renting the property.
No matter what the intended purpose, there are advantages to owning a second home:
Owning a vacation home can be profitable in the long run, despite having to put up money in the beginning for a down payment. Typically, since vacation homes are in desirable locations, they will often not only retain their value, but appreciate over time. While there is no guarantee that the home will acquire more value, the risk associated may lead to increased wealth.
A second home can create profit immediately if you decide to rent out the property. Rental fees will vary based on the home’s location and the season, so it is best to do some research before setting a price for tenants. There may even tax deductions that can be arranged. If you as the owner occupied the home fewer than 10% of the days you rented it or for less than two weeks, whichever amount is greater, you can deduct all of the expenses relating to the successful operation of the home including interest, utilities, cleaning fees, lawn maintenance, and management fees. Contact a tax professional to review the potential deductions for your situation.
Vacation or second homes can be a great asset during retirement. As people age, they often don’t have the energy or desire to deal with the more troublesome aspects of owning a home, such as extreme snowfalls or blistering summers. Having a second home in a more desirable location can allow older residents to retreat at the times of the year that are a struggle or unpleasant in older age. In addition, you may not want to keep your current home later in life. Some people find the home that they raised their family in to require too much upkeep later on. Having a second home in a different location allows retirees to build friendships and experience a new community that may be their primary home later on.
Owning a second home or vacation residence can be convenient for many reasons. Whether your second home is used as a place to stay on vacation or for family gatherings, it can exude a sense of calm to know that lodging isn’t something that needs to be considered. It can be great to make memories at a family vacation home, especially if you have the privilege of passing the property down from generation to generation.
Sound like a second home is for you? Before you put in an offer on any second home, there is some important financial information that you should know:
For an investment property purchase, a minimum of a 20% down payment will be required and will carry a higher interest rate. A regular second home purchase will have a lower down payment (a minimum of 10%) and will be eligible for a better interest rate.
Determining whether you will use the property as a vacation home or an investment property will help determine what mortgage and tax guidelines to abide by.
Additional insurances may be needed for your second home depending on its intended usage, and funds should be set aside to care for the home in case of an emergency.
Deirdre O'Connor with Dwell360 is a REALTOR® who services the cities and suburbs of metro Boston. She is focused on her customers and her experience in the residential real estate market is extensive. Search for homes in Massachusetts and then give Deirdre a call.