Buying A Second Home
Buying A Second Home
John Caliendo (Realtor) gives expert video advice on: What are the common reasons for buying a second home?; If I am buying a second home as a rental, what factors should I consider?; If I am buying a second home as a weekend getaway, what should I consider? and more...
What are the common reasons for buying a second home?
When buying a second home, there are a lot of good reasons for buying a second home, if you have the means, of course. It's almost like a synergistic action where you are at the same time building equity, but in a different profit center. You are ending up with a wonderful place to vacation from time to time and with somebody paying your mortgage in terms of rental income coming in. So, buying second homes is a popular trend, depending on the region. For example, on the west coast, it will probably afford you more opportunity with some of the more retirement-oriented communities with all the demographic moving to warmer climates. Perhaps, maybe, in areas like the southeast, again, that would apply too. Several factors all work together in making a second home purchase worthwhile.
Are second homes a good investment?
When buying a second home, like any initial real estate purchase investment you have to know what you're doing when going in for it. I think that the biggest fear and concern to most buyers of a second property investment is that they're going outside of their domain. They know their area that they're living in and the area that they grew up in. However, when it comes to this other hot area that they've heard about, they're kind of working in a vacuum. So, I would recommend really diligently digging in, learning the ‘ins and outs' of that community, the same way you would purchase a primary home. Treat it as a primary purchase investment but it just ends up being a second purchase.
What does the term "real estate bubble" mean?
When buying a second home, a real estate bubble is a hot topic in many cocktail parties that I attend; it basically refers to a market being over-inflated by an overzealous buying public who are artificially inflating home prices to the point that they will ultimately have to implode. Now, whether or not this is the reality of real estate, it remains to be determined. To answer the question, what is a real estate bubble, that answer would probably be a good description.
Do I need to consult a CPA or tax advisor on the purchase of a second home?
I would strongly recommend that you talk to a CPA or tax advisor when purchasing a second home because there's a host of reasons. For example, you're not getting the same loan that you would get on a primary. In other words you might be paying a slightly higher interest rate. Secondly, your write-offs on that secondary home may not be as significant as your primary. Those are two excellent reasons to know what you're getting yourself into. In other words you don't want any surprises after the fact and then have to sell off that second home because it didn't turn out to be what you thought it was going to be.
If I am buying a second home as a rental, what factors should I consider?
If you are buying a second home as a rental, my recommendation would be to treat the purchase of a second home the same way that you would treat the purchase of a primary home. Meaning you want to dig in, learn about the neighborhood, the community, the location, the value, trends in the marketplace, and anything else that would factor into it becoming ultimately a wise purchase decision.
What does the term "positive cash flow" mean and how does it pertain to rental properties?
A "positive cash flow" means that the gross scheduled income--your money coming in--or the net gross scheduled income exceeds the operating expense, meaning it's making money. You're in the black, not the red. You do not have to contribute to it monthly to make the payment.
What is a "property management company"?
A property management company is an entity that would look over your income property for you. In other words, income properties are oftentimes out of the domain of where the buyer may live. In other words, you may have a property out of state. So, instead of having to hop on a flight every other weekend to go check on a property, you hire a management company who does that for you.
When is it a good idea to use a property management company?
When buying a second home, property management companies are probably best applied and used when you live beyond a close proximity to the property, and when it is a multi-unit complex. For example, managing two or three units from a distance away could be a whole different story than managing 12, or 24, or 75 units.
If I am buying a second home as a weekend getaway, what should I consider?
If you are buying a second home as a weekend getaway, obviously you may be retiring there, so it might be an area that you already have a working knowledge of, already aware of others, whether it be friends, neighbors, or associates who have purchased in that area and know if it has been a worthwhile purchase. Otherwise, you would want to look for the same sorts of things you look for in a primary residence. You want to make sure it's a good area, good schools, good services, good market values and good trends of valuation.