Factors to consider when Investing in a second Home

While the idea of owning a second home may be appealing, there are factors that must be considered when investing in a second home. While having second home can be considered a great investment idea, itt certainly not without pitfalls. Before you invest in a second home, consider these factors:

A) Affordability – The first and foremost consideration is whether or not you can afford a second home. Make an inventory of all of your current income, expenses and determine your remaining disposable income. While most people who consider investing in a second home intend to use it for rental purposes there is never a guarantee that the rental will be year round or dependable. Even leases are broken when there are issues between landlords and tenants.

B) Financing – If you currently have a mortgage on your first home that is paid on time, you have perfect credit and you have a steady job you might think getting a mortgage on a second home will not be a problem. Many lenders place restrictions on Loan to Value Ratios that are different from primary residence financing. In some cases, primary residences can be purchased for as little as ten percent down – second homes often require substantially more, as much as twenty five percent. In addition, lenders may only consider a portion of potential rental income towards your overall income.

C) Repairs and Maintenance – If you are renting your second home, there may be maintenance and repair issues that you will have to consider. In addition, many rental properties have requirements that personal residences do not. Check your local requirements for smoke and fire alarm systems to see if they vary in primary residences versus rental properties.

D) Tax Considerations – If you are a current homeowner you will want to verify with a tax professional what the tax implications of a second home. There are municipalities that will charge you tax based on the prevailing market rental rates even if you are not renting your property. This additional tax could cause a financial burden that makes the second home not feasible.

E) Rental Aggravation – If you are purchasing a second home for the purpose of renting it, you should fully understand all the pitfalls of being a landlord. Be sure to check with your local municipality for rules and regulations regarding security deposits, rent, maintenance and other criteria that may be unique. Prepare a thorough rental contract to help protect yourself and your tenant. Be certain it is clear and concise and seek legal counsel before presenting it to a tenant.

While investing in a second home may seem like a great idea at the moment, it is important to consider all of the factors that could impact your decision. Be sure you thoroughly investigate all of the factors that will impact you before you make your final decision to purchase a second home.