If you’re thinking of making an investment in real estate, or are looking for a space that brings you closer to nature after being quarantined for the last few months, a second home might be ideal. As a homeowner, a second home can serve as a dependable and fully customizable vacation destination and also a way to earn rental income. If you’re considering purchasing a second home, there are a few things to keep in mind as you start your search.
Consider your future plans
First, consider why you’re buying the home. Is it somewhere you’ll want to visit on weekends, stay for a season, or even retiring there? Will you be time sharing the home with family members or friends? Do you plan on renting it out? Do you plan to maintain ownership of your current primary residence? Considering your short- and long-term plans will help inform your budget and determine your wish list. Evaluating your needs will also help you narrow down the perfect location.
We all know how important location is when searching for a home, but there are some key factors to consider when determining the location of your vacation property. You should carefully consider your commute—is it important that the home is somewhere your family can easily access for last minute getaways, or are you willing to spend some serious time on the road to reach your vacation destination? Are you hoping to live along a shoreline or small town? Are there other amenities you would like to be near such as golf, fitness centers or spas?
You’ll also want to think about the amenities your second home will have access to. While a remote cabin situated a 30-minute drive from the nearest town may be ideal for some, others may prefer to live somewhere within walking distance of entertainment, shopping, and dining. Dreaming of pontoon rides or waterskiing? There are options along shorelines, and homes that offer exclusive access to private lakes—so it will be important to your search to decide which best fits your needs. Those looking for a more all-inclusive community may be more attracted to the country club lifestyle, which tends to offer more on-site amenities like pools, clubhouses, and sports than a more remote locale.
Historically, second homes require a larger down payment—usually around 30%—and a higher interest rate than first homes. Keeping this in mind will allow you to better save what you need to keep your second home dreams in sight. For example, if your budget is approximately $200,000 for your vacation home, you’ll need a minimum of $60,000 for the down payment. You should also keep closing costs (3-5% of the purchase price) and additional ongoing maintenance expenses top of mind, in order to properly allocate your savings.
All homes require maintenance, with the average annual fees for any home clocking in at about 2% of the property’s value. Don’t underestimate the cost of maintaining your second home. Be sure to account for the typical repairs—like appliances, exterior paint, etc.—but also plan for other possible expenses such as dock fees and pool maintenance. If someone will have to care for your home while you are away, you should factor this cost in as well.
Rental income can help defer some of the cost of owning a second property, so it’s worth weighing the local rental market into your decision. Vacation rental sites are a great way to see rental prices in your desired area. It’s also a good source for finding out what types of homes and amenities are in highest in demand. Before you buy, be sure to also consider tax laws surrounding rental income and speak to a professional before jumping into the rental market.