The pros and cons of buying a second home.
If you already own a home, you know about all the responsibilities and obligations that come with home ownership. If your home owning experience has been a positive one, the thought of a second home may have sparked your interest.
The following are reasons you may want to buy a second home, for either an investment or just vacation.
- Having a rental property, buying a second home strictly to use to rent out to tenants, can boost your monthly cash flow if rent will cover your expenses. With the real estate market still low, it is possible to buy a second home and be able to rent it out with a positive cash flow.
- A vacation home can serve as a nice getaway spot for you and your family and friends. Keep in mind however, you need to make sure you can afford the extra monthly expenses since you will not be renting the home out to make a profit.
- An investment property can be bought for family members, say your son or daughter in college, and can be sold later for a higher price. Or you can use this piece of property to use for future retirement.
- Upgrade to a newer and bigger second home and rent out your first home you bought. You can possibly receive a positive cash flow on your first home and enjoy the luxuries of your newer second home.
With interest rates and housing prices still at an all-time low, this makes for a great time to buy a second home. If you do decide to purchase a second home, it is important to know that location is everything. We all want to buy a home with the thought that the value of the home will go up. In order to increase your chances of awesome resale value, choose properties in areas like beaches, lakes or mountains.
When looking to purchase a second home, remember the overall costs just to own and maintain your first home. Don’t make the mistake of underestimating the real cost of home ownership for a vacation property or rental property.
When it comes to your second home and taxes, there are different rules than you’ve gone by with your first home. With your primary residence you are allowed to exclude up to $250,000 in capital gains ($500,000 if you are married) when you sell your home. The same exemption does not apply to your vacation home when you sell it. In order to get the tax break, you would have to make your vacation home your primary residence for at least two years.
Even more rules apply to your second home if used as a rental property. We suggest getting help from your accountant when it comes to taxes and your second home. Do you have questions about owning a second home? Please comment on our blog or contact us.