Mortgage California Blog

Is A Second Home The New Moneymaker?

October 16th, 2017

As investments go, real estate is either the smartest place in the world to stash your money or the stupidest thing you can do with it – depending on all kinds of things like location, pricing trends, interest rates, condition of the property, and how long you plan to be in it. But what about second homes? How do you know when buying a home for weekend use, vacations, or as a legacy property is a smart choice?

“Buying a vacation home or investment property is a great way to expand your real estate portfolio,” said FrontDoor.

And, it’s a trend that continues to grow. “Sales of second properties were up almost 30% in 2013 from the previous year, according to the National Association of Realtors(R),” said Forbes.

Financial Implications

There are, of course, serious financial implications – purchase price, closing costs, monthly commitments, and taxes will all weigh heavily in the decision to buy a second home. But there are also potentially serious financial benefits.

“There’s no reason to think your second home won’t appreciate over time, especially if you buy in a resort area likely to retain its popularity,” said SFGate. “Even modest appreciation over many years of ownership might be acceptable, especially because the other benefits of second-home ownership are so appealing. However, if you need more bang for your buck, you can generate investment income by renting out the house when you’re not using it. And, whether your second home is an investment property or strictly for personal use, it’ll give you some tax write-offs.”

Location

Location is among the most important factors in any real estate purchase, and even more so for second homes that are intended as moneymakers, even on a part-time basis. The most successful Airbnbs in the country offer one main element in common – they’re in places where people want to stay. They typically also have great views, convenience to area hotspots, and amenities to suit a family or surround you in luxury – more things to consider when looking at potential second homes.

Choose right and your vacation home can pay for itself, and then some. Want to buy a “contemporary property that offers a porch that overlooks a sublime view of Atlanta?” This one gets $495 a night and is occupied 100 percent of the time it’s available. A Victorian triplex brownstone in Boston goes for $700 a night with a 90 percent occupancy.

“With sites like Airbnb and VRBO on the rise, the idea of owning a second home and renting it out for profit might seem appealing, even if you aren’t part of the one percent,” said MainStreet.

Airbnb isn’t the only option for renting out a second home. The New York Times lists several others, including Kid & Coe, a great alternative for families looking for a vacation rental.

Retirement home

Second-home purchases among pre-retirees is a growing trend that shows no signs of slowing. Beyond the opportunities to earn some passive income by renting out the home, it can serve as a “trial run” before committing to a new home and area.

“Purchasing a second home in the places where you want to retire years from now gives you wonderful vacation opportunities and allows you to establish community ties that make for a smooth transition later,” SFGate.

Beginning Investors

A second home is not necessarily reserved for experienced investors. In fact, smartasset goes so far as to say that a first home purchase should be an investment property.

“Aside from having no credit, being young and on your own can be pretty amazing. You make your own rules, live where you want, buy what you want and travel whenever you can. But that can get old pretty quick especially if you have other goals in mind,” they said. “All the money you’re currently spending 'living the life’ while living in a crappy apartment, could be spent on 'building the life’ while living in a crappy apartment. Saving money to pay your bills on time and build up your credit isn’t impossible. More importantly, your lifestyle allows for penny pinching that you might not otherwise be able to undertake later in life because of larger obligations. Leaving you with plenty of cash for a down payment, or to purchase a distressed home.”

 

Written by Jaymi Naciri

 

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