Owning a second home is a luxury once only reserved for the insanely affluent. However, real estate as an investment has become a more common occurrence in middle-class families across the country. According to HUD, there are more than 12,850,000 non-owner-occupied homes across the United States. More than 2 million of these are seasonal dwellings.
Should you buy?
The decision to invest in a rental property is highly personal and will depend on a number of factors, not the least of which is your income and expenses. According to Forbes, there are a number of other things to consider including distance and local crime rates. Once you’ve evaluated your situation and are ready to move forward, you are still not quite ready to initiate your house hunt.
Budget and down payment
Buying a second home is much like buying your primary residence. Many of the mortgage requirements are the same, though you will likely be required to shell out a 10% to 20% down payment regardless of your credit. BankRate.com asserts that insurance may be more difficult to obtain and therefore more expensive than for a same-priced personal home. You will need to budget for this along with home maintenance and lawn upkeep, especially if you plan to utilize your getaway to generate an income.
Determining where to buy your vacation home may not be a challenge if you make an annual pilgrimage to your favorite seaside villa or mountain chalet. But for the rest of us, it’s difficult to decide. Before plopping down your down payment, spend a few days in each potential area to determine if it’s somewhere you’d really like to visit more than once a year. If you’re going to list your home as a vacation property, you’ll need to weigh your vacation needs against peak season. For instance, if you like to get away during the summer, a Gulf Coast property may be ideal. Since Florida and the Alabama shore are meccas for snowbirds, with the right marketing, you can virtually guarantee your mortgage will be covered during those months you don’t plan to use your property.
Condo, cabin, or home?
In addition to location, you have to make the decision to purchase a condominium or freestanding structure, such as a beach house or captain. If you plan to eventually retire to your second home, look for properties that have easy access to necessary amenities, such as grocery stores and medical offices. Multi-housing properties should be well lit with a dedicated on-site security team. If you opt for a single family home, you likely won’t have the convenience of an elevator, so ensure the layout will accommodate your current and expected future mobility level.
Is it a good investment?
While most experts (and everyone else) believe that real estate is the best investment, it’s worth noting that buying one or even two vacation rental properties isn’t a fast track to substantial wealth. There is no guaranteeing that you’ll be able to sell your property for profit, especially if you decide it’s not for you with the first few years. Many investment professionals shoot for around $300-$400 per month profit on full-time occupied units. Since your rental likely won’t be rented year-round and you will have to pay to perform upkeep while you’re away, your monthly income may simply mean you break even. Be realistic in your expectations.
Buying a rental property is a major life decision and one that should not be entered into lightly. However, if you’re willing to put in the work and can snag a property when prices and interest rates are low, you may be able to enjoy your second home with few out-of-pocket expenses.