Buying a second home is often a lifelong dream for many. Whether it’s a vacation home, a commuter home or an investment property, there are plenty of reasons why buying a second home could be a great fit for your lifestyle. But before you buy that second property, make sure you know all the costs both literally and figuratively that come with it. To guide you onto the right path, I have highlighted some of the most important things to consider when buying a second home.
How Much Time Will You Be Spending At This Property?
If you are envisioning that this second property will be enjoyed by your family for half of the calendar year or more, consider changing the title of this second property to your primary residence for financial benefits.
If, however, you do not plan on using your second property as a residential property but rather an income property, remember that you will become a landlord and with that comes many responsibilities. You might be required to do minor repairs, and you might not find a tenant right away. Be prepared to have three to six months of total costs (mortgage, taxes, and homeowners insurance) to prevent any financial hardship while looking for a tenant for your income property.
What Kind Of Property Are You Looking For?
If you are considering buying a rental property, remember that you have many options available to you. You can purchase a condominium or a house in a community you might want to retire to, or a house or condominium in an area where your children are attending postsecondary education as an alternative to student housing. If you want to have a rental property somewhere more idyllic, you can easily consider a cottage or chalet that you can rent for long or short-term stays should you wish to also enjoy the property.
It is important to note that the type of property you select affects your insurance costs. A home close to water will require flood insurance in addition to home insurance. When finding an insurance company, you need not stick with the one you are currently using for your primary residence. The closer the geographical proximity the insurance company is to the property the better the understanding they will have of how the elements will affect the property and respectively have a more accurate insurance quote for you.
Have You Thought About Upkeep?
If you choose your second property to be more for personal use than for investment purposes, remember that a part-time home does not have part-time costs. Utilities cannot be switched off for the times that you are not there, unfortunately. The same goes for lawn care and the occasional home repair which should be budgeted into the cost of buying a second home.
Have You Thought About How You Will Pay For This Second Property?
The first thought that comes into the head of a second-property purchaser is to get a second mortgage. Banks and financial institutions will use the same criteria to approve any mortgage, therefore you have no worries that they will be more stringent because it is your second property. What you should look out for is that your income, credit score and total outstanding debt is potentially leveraged against your first mortgage. This can make it more difficult to purchase a second property.
The silver lining to this cloud is that you need not necessarily get another mortgage when buying a second home. Speaking to a financial advisor can help steer you in the right direction to see if using the equity from your existing home is a possibility for you. In general, this is approved if the value of your home is greater than the outstanding mortgage loan, or if your home is paid in full.
Also, keep in mind that tax rates for properties will increase over time and that your budget should allow for growth in costs throughout the years. If this is a rental property it is unlikely to be an issue as tax rates run hand in hand with the increase in property values, meaning you could charge more for rent.
Buying a second home is an exciting adventure that opens a new chapter in your life. While there are certainly more pros than cons to this big step in your life, I want you to be aware of some of the speed bumps that you may encounter, and the options that are available to get over them. I would love to help you with this new endeavour in your life! Please feel free to contact me so that I can assist you on the journey of buying your second home.
