Although a risky investment, real estate remains at the top of the buy list of investors owing to the attractive and stable income return it promises. This is the reason that most investors after buying their first home seldom stop there and start searching for the second one. If you are one of those who believe in real estate’s immense potential as an investment destination then this post is for you.
Why invest in Second Home?
The answer to this question is subjective to the buyer’s requirements. While for some, buying a second home is simply a way to build a future income stream, for others it may serve a purpose as a holiday getaway and then there are some who just do not know anything better to do with their cash. Whatever be the case, owning a second home is becoming increasingly commonplace.
Reasons to buy a second house:
Finances, family, fun and future. These four words pretty much sum up the entire logic of buying a second house. A second home is best viewed as a future investment which would give you a handsome return when you will need it most.
Moreover, a rental property can significantly boost your existing income, leading to a better standards of living and contended lifestyle. What if you want your children to have a separate property to call their own where they can start out with their professional or married life? Moreover, a vacation home can be a lot of fun, where you can get away from the normal rote of daily activities.
Lastly, you can keep your second home as your old age retreat, ending all the insecurity and other fears that are normally associated with getting old. While all these are pretty solid reasons for buying a new home, if you have the cash and do not want it rot in your bank lockers there is no reason why should not consider investing it in real estate. Of course, buying a new property is a huge commitment and mustn’t be taken lightly in any case. Here are the important points to consider while buying a new home.
Choose the location
The ancient adage that says location is everything in real estate holds true for buying a second property as well. A home in badly chosen location is of no good and might become a deal made in losing cause. Bad location means neither it will attract future buyers, nor you can use it as vacation home.
Perform acute market analysis, compare them with your personal preferences, and arrive at a logical agreement using both the arguments. The market research must include points like existing supporting infrastructure and future connectivity with the rest of world, availability of facilities and amenities, property tax rates and general public interest.
Choose the type of home you are going to buy
The type of property you want to own is as important as the location. Owning an apartment against owning a single-family home is much easier, more manageable and less costly affair, and as a matter of fact different types of properties serve different purposes.
Therefore, the type of property you buy is bounded by certain parameters such as costs, location and local economy trends, time and resources you are willing to sacrifice for the maintenance of the property. Apartments, condos, townhouses require quite less maintenance than, say, a single-family home or a duplex.
Cost Considerations
Cost is one of the most important considerations to make while buying anything new, and when it involves transactions where the stakes involved are so huge, it is of paramount importance to contemplate the cost of buying a new property. Mortgage is the most widely used options for buying out a new property. Considering that your first home purchase was also on mortgage, you can remortgage against your first property provided there is sufficient equity in your first property.
In case, your first property doesn’t have special equity against it then you will have to take a fresh mortgage, whose type will depend on the property you are buying. However, a number of buyers use Cash as their first option to buy a second property.
As per the NAR-Harris Interactive Poll 32 % of vacation-home owners paid cash to buy a new home and the cash comes from either half used savings or equity against their first homes or sale of other real estate. Therefore, if you are considering buying a new home make sure you do not have empty pockets.
Tax Implications
Owning a new property does come with its own implications and complications and tax is definitely one of them. A second property means added responsibility of property tax that varies as per the country and state. In case you are renting out the property, include income tax in your considerations.
Although taxes can sip out a significant amount of benefits that your second property would have otherwise brought you, a little planning on your part would go a long way in changing the end dynamics. The finest example is of buying a property in a tax-free state or country or leasing out your property to government or NGO for saving on income taxes on the rentals.
Management & Maintenance
Since your second home will be devoid of your caressing touch and watchful eyes for prolonged periods of time, it will inevitably need maintenance. If you have rented out your home to someone else make sure to give surprise visits to ensure everything is in order and also brief your tenants on the importance of keeping the place up and running.
The preventive measure in this case would be to choose a tenant carefully after utter discretion. Besides, even if the place remains vacant, be prepared to devote a considerable amount of resources and time for its upkeep. A fresh coat of paint, a garden trim or a simple floor wash is some of the most innocuous yet necessary revisions that any second home requires over its entire course of lifetime.
Owning a second home is a dream for many and a reality for a relative few. If it does materialize for you, make sure that every penny you spend is worth it in the end.
Delhi born Saurabh Tyagi has a penchant for writing, which he discovered early on in life. He likes to put pen to paper every now and then for topics such as properties in Kochi, serviced apartments for sale and commercial real estate property. . Currently he writes on behalf of 99acres.com, a leading real estate site.
