Buying a second home can be used as a vacation home, but also as a smart investment for the future. If you ever stop going to this second home, you can always consider selling it for a higher price or you could rent it too. This is a great idea, but a lot of people fail to execute it correctly and then they end up with IRS problems or get into debt which is never good. But, don’t worry, if you start preparing early and if you read up on some information online before going with this decision, nothing will go wrong.
So, if you want everything to go right when buying a secondary home for yourself and your family in 2023 then here are some things you should consider before making the purchase.
Can you really afford it?
The first thing you will need to consider before doing any rash decision is to first make sure that you can really afford a second home in your life. First, you will need to check whether you can get a second mortgage and how much of an impact it will have on your monthly or yearly salary. You should also research how to get the best mortgage rate, and sites like Credible are a great resource for doing so. Fortunately, there are several websites on the internet that can calculate how much you will need to spend every year and how many years it would take to pay it off.
Don’t be confused that when you find out that the monthly rate for the second mortgage is a bit higher than your first one even though the total amount is lower. This is because the interest rate of the second one is usually always higher. If you have the documentation and the ability to convince your bank that you have paid your entire first mortgage and that you will be able to handle the second one, the interest rate may drop. If you can’t get a loan out of your bank then you should definitely check this website for a mortgage loan.
If you do not feel comfortable going with your bank then you should know that most lenders are a bit more skeptical when it comes to a second home. You will need to do a lot of convincing if you want to get a loan for this new house or apartment and you will also have to drop a down payment a bit higher than usual. Although it probably won’t be any higher than twenty percent.
It is also important to note that some countries, especially some states in the United States have a lot of limitations when it comes to renting a secondary home. The tax services of a country do not see an investment property the same way as buying a brand new home, again. So, if you plan on doing this kind of purchase as a way for income, then you should definitely understand that you can only rent it for a maximum of 14 days without having to report the income. If you decide to rent the place for more than those 14 days then you will have to report the income or you may get serious fines by the IRS.
But, those 14 days can also be seen as a benefit too. You get to rent your new apartment “for free” for two weeks without having to worry about reporting your income to your government or about paying any extra taxes. It is a great way to make a couple of thousand dollars on the side.
You might think that there aren’t any risks or liabilities when purchasing a new house or apartment, but if you do not plan on living in it often, there are actually quite a few risks.
The longer this new apartment stays unoccupied or empty, the higher the chances of a thief entering, stealing your valuables and destroying the furniture. There is also the chance of people entering and living it is because they have noticed no one has occupied it for weeks.
To prevent this from happening you could either install sensor detection cameras that would activate and notify you whenever someone is approaching the windows or doorstep. With an application on your phone, you could see what is going on with the camera. You also have the option of hiring security, but that can be a bit more expensive.
Another risk regarding a vacant house or apartment is water damage. If the pipes are left unused for a lot of time, the water in it can get contaminated and might damage the pipes. This kind of damage to the pipes can increase the chances of a burst which can lead to damaging your furniture, your valuables and even rot the wooden beams that are part of the building’s structural integrity. The pipes could also burst if the building is located in a colder climate.
If you want to avoid this kind of damage we recommend that you either install a monitoring system that can track the pipes or the levels of moisture in a room.
In a perfect world, the best way to reduce the chances of any kind of risk is to have someone constantly live in the house or apartment. Keeping the water flowing will prevent the pipes from ever bursting and keeping the lights and TV on will prevent people from vandalism or stealing.
An additional way to reduce the risk is by going small. Buying tiny houses is becoming a trend and according to Absolute Tiny Houses, more and more people opt for such an investment. The reasons are low mortgage, low maintenance costs and easy fixes. Also, not many people would rob tiny houses as they believe there isn’t much that can be found there. If you consider a second home, perhaps the answer lies in that direction.
A lot of people think that all of the expenses related to a second home are done after you have paid back all of your loans. But, you will also have to consider a few other expenses that might show up late.
Home insurance. Even if it is not your primary home, it does not mean that you should leave this building without any kind of insurance. Keep in mind that some insurance companies do not want to insure empty homes.
Bills. You probably already are well aware of this, but you will also have to pay bills for utilities such as waterworks and electricity. Although, the bills will be a bit cheaper than what you are used to.