Considering a vacation home or investment property?
Whether its abeach cottage or mountain retreat, a second property can be rewarding yet complex.
This guide covers important matters such as choosing the right location, understanding tax benefits and managing finances.
INITIAL CONSIDERATIONS
1.
How will you use it?
Others see potential in short-term rental income that can help offset the cost of the property.
For the latter, experts advise approaching the investment with your personal interests in mind first.
To me, its more of a luxury that youve worked your whole life for.
Its a space you’re able to share with your family and friends.
Keep it close…
An oceanfront or mountain retreat sounds great in theory.
Or close to family members
Some people will invest in vacation homes as family gathering spots.
Is there a location somewhat close to everybody?
Remember that you will be responsible for the upkeep of the property, includingregular maintenanceand occasional repairs.
How long will you own it?
It may seem early to consider selling a vacation home while youre still in the process of buying one.
But thinking ahead can help you make a smart financial decision.
Chastain suggests considering whether you plan to sell the home down the road or keep it in the family.
If the plan is to sell at some point, the local housing markets long-term outlook is critical.
Talk to a real estate agent to get a sense of appreciation potential, economic growth and market demand.
FINANCING
8.
How will you pay for it?
Financing a vacation home is different from a primary residence in several important ways.
This is because second homes carry more risk for lenders.
Borrowers are more likely to default on asecond homethan on their primary residence when faced with financial hardship.
A second property also isnt eligible for FHA or VA loans, only conventional mortgages.
A score above 740 is likely to get you a highly competitive rate, he says.
A score below 620would make it nearly impossible to qualify.
FHA andVA loansare also not typically available for investment properties.
They typically will require proof of rental history or an appraisal with estimated market rent.
Finding the right appraisal for your rental property involves two key steps, according to Sinnett.
First, choose a certified real estate appraiser who specializes in investment or rental properties.
Second, request a rent schedule appraisal using the appropriate standardized form.
