Buying a second home can be a great long-term investment if done properly. You can repurpose it as a vacation rental and earn passive income while focusing on your main job. Or, you can live in your new home and rent your old one, depending on your preference. Since you aren’t pressured to move in, you can take your time to pick your suitable property. It’s essential to consider certain factors before investing in a second home, including the following.
The financial impact
Owning a home requires you to stay on top of its maintenance costs. That said, owning a second property means your maintenance costs would double. For instance, you may deal with lighting problems in your first home and sewer pipe issues in the second place a short while after. Moreover, other costs like utilities, upkeep, second mortgage payment, upkeep, travel costs to get there, etc., can also require significant amounts. Therefore, it becomes imperative to analyse your finances to ensure you can handle a second property. Experts advise asking questions like:
- Are you free of credit card debt?
- Can you save up to 15% of your income for retirement?
- Have you paid off your current home?
- Have you created an education fund for your kids (if applicable)?
- Do you have an emergency cash fund?
If you successfully check these boxes, you may be better positioned to own a second home. Consequently, create a feasible budget for your new property, factoring in contingent expenses to determine if you can comfortably handle these costs without straining your finances.
How to finance your purchase
Since buying a second home is a huge financial commitment, determining your financing options makes sense. Fortunately, your first property could have significant equity attached to it since properties have increased in value. And you can leverage this equity as a deposit for your second home without selling your first. You also can benefit from building equity on both homes if you purchase carefully. However, working with professional mortgage advisers will prove helpful when using this option. It’s important to note that the bank will let you borrow 80% of your current home’s value, also known as the loan-to-value ratio.
Several options exist when using equity to purchase your new home. For instance, you can use your current home as security, although you risk losing both properties if you default on your mortgage payments. In this case, working with mortgage protection insurance experts like Domonique Rodgers can prevent these losses. You can also increase your first property’s mortgage to get a deposit or re-mortgage to buy on the spot, so feel free to consider these.
The condition of the house
It’s also essential to inspect the home you’re about to purchase. This means viewing it in person and not just relying on pictures. You must check that it’s in good condition and doesn’t have any underlying problems, like damaged roofs or faulty wiring. This is especially important if you are looking to buy a mobile home. For example, if you notice that the mobile home is not level, this could be extremely dangerous. You will then need to contact a company like Top Notch Mobile Home Services to help you repair and replace any faulty mobile home parts. Additionally, you should inspect the neighborhood where the house is located to ascertain its safety levels.
The rental potential
You also want to ascertain your second home’s rental potential before purchasing it. This is because you can make enough money to pay off your mortgage and cater to its maintenance if you invest in the right property. Moreover, you can build wealth by saving income generated from your home. Tenants consider location when renting a home, so you’ll find it helpful to purchase a home that makes it easier for them to commute. Consequently, ensure that it’s closer to schools and other facilities.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)