Factors to Consider Before You Buy Second Home as an Investment

There could be a stage when you begin contemplating buying a second home as a form of investment. There is no doubt that a home that can generate supplemental income for you is an attractive proposition, but before you dive into this investment, you need to consider certain factors to see whether buying a second home as an investment is a prudent decision.

Is a Second Home in Your Budget?

Before you actually begin looking for a suitable second home, you need to sit down and calculate whether you can afford two homes simultaneously. Remember, there will be insurance, mortgage payments, property taxes and upkeep that you would have to spend money on. Do not forget the time you will be investing on both homes. You should ask yourself whether you can keep up with the expenses that two properties will incur along with the time investment. If yes, it is time for you to begin your search for that ideal second home that will generate a supplemental income for you and line your nest egg.

Location is Everything

It is imperative that you select the right location for your second home. The location should be such that is easy to reach and also there are no chances that it will lose its charm over the coming years. The right location will help the value of your second home appreciate over the years and also make it an attractive rental home. Renting out your second home will allow you to pay bills and in the long-term you will make money if you can keep the property in good condition.

Expenses You Will Incur

After choosing the location for your second home, it is important that you take into account the cost of property tax and insurance. These costs will be dependent on the location. So be prepared if the property tax is higher than your primary home. Also, if your second home is located in a flood or hurricane zone, you may have to shell out a substantial amount on annual insurance. Lastly, most mortgage lenders know that a second home is a financial risk. Hence, your mortgage interest rate will be higher than your primary home.

Second Home Management

If you do not live in the vicinity of your second home, you definitely would need to hire a property manager to take care of the property. In addition, you would have to shell out money for lawn mowing and garden maintenance. If the property is located in a place that receives snow in winter, you also would have to pay for snow removal. Another aspect that many homeowners forget is the higher risk of theft and damage. When second homes are locked up, and there is no security, the risk of theft and vandalism increases. So, make sure if you do not intend renting out the home round the year, you need to have security in place.

Liability of Owning a Second Home

Another risk is being sued by your renters for hurting themselves while they are living in your property. This is a risk you should be prepared for and take out an insurance to ensure it does not take a toll on your finances.

Type of House to Buy

Since the property will not be your primary residence and you will be buying it as an investment, it is important to look at homes that will appreciate in value over time and those that potential renters will find attractive. This will require fair amount of research, but it will be worthwhile. Once you know what prospective renters are keen on, you can investment in a home that has all the features to make it an attractive rental property.

There is no doubt that a second home makes an excellent investment property, as long as the location is right and the property has features to make it attractive to others. Your property will allow you generate supplemental income and over the course of years it will appreciate in value. If you decide to sell it, you will always enjoy a profit. And, if you have a smart financial advisor, you also could enjoy tax benefits. However, buying a second home requires research and planning so that you make a prudent investment decision.