Having Second Home Thoughts?
The Ins and Outs of Buying Another Residence
BY AUDREY SELLERS
Maybe you dream of escaping to a beachfront bungalow or a cozy cabin in the mountains. Buying a second home can lead to greater fulfillment, whether you get a place in your favorite resort town or a residence close to your grandkids.
A second property can also have significant financial benefits, from tax breaks to potential rental income. More people are interested in owning a second home now than before the pandemic, according to Inman, an independent news publisher for the real estate industry. More than half of Americans (55%) who don’t own a second home say they now want one, compared to just 46% who wanted a second residence before the pandemic.
If you’re thinking about buying a second home for a private getaway, a retreat for your family and friends, or a way to bring in extra income, read on. We’re sharing a step-by-step process for purchasing a second property.
First, Know Your Why
If you’re buying a second home to rent out, look for homes in popular destinations. Buying in a desirable area can help ensure your property gets rented more often. If you’re hoping to use your second home as a weekend getaway, look at communities closer to home. Also, consider whether you value low-maintenance living over more privacy. Condos and townhomes require less upkeep, but a single-family home gives you more of your own private space.
Next, Set a Budget
Know exactly how much you can afford to spend on your second property. Most financial experts preach that cash is king, so try to wait until you can buy your second home with cash when possible. You can also explore options like home equity loans and conventional loans.
Then, Find a Real Estate Expert
An experienced real estate agent can help you find your perfect home and negotiate on your behalf. Look for an agent local to the area you want to buy your second property. They can offer guidance on specific neighborhoods and help you navigate finances. A local real estate expert knows what’s happening in the community, which is especially helpful if you’re buying somewhere you can’t get to quickly.
Last, Make an Offer and Prepare for Closing
Buying a second home requires the same steps as buying any property. You need to know your budget and where you want to buy. When you find your dream second home, you can make an offer, negotiate, and reach an agreement. Before closing, you’ll typically request a professional home inspection and conduct a final walk-through.
Achieving the American Dream — Twice
You don’t have to be wildly wealthy to buy a second home. When you know your budget and work with an experienced real estate agent, you’re one step closer to owning the vacation home or investment property of your dreams.
Financial Factors to Consider
Even if you pay with cold, hard cash like 30% of second-home buyers, you should plan for other costs.
Keep in mind:
Closing costs. In 2021, the average closing costs for a single-family home were about $6,800.
Property taxes. In 2020, the average single-family home in the U.S. had about $3,700 in property taxes. If you’re buying a second home in Texas, prepare to spend more than buyers in many states. Property owners in Texas pay about one-third more than the national average.
Homeowners’ association (HOA) dues. Investopedia reports that the average HOA fee is about $200 a month. However, this varies depending on your community and what the HOA covers.
Homeowners’ insurance. You may pay more to insure your vacation or rental property. This is because insurers believe you are more likely to file a claim on this home due to its proximity to high-risk flooding or wildfire areas. While homeowners’ insurance varies, it typically costs $4 per $1,000 of home value.
Miscellaneous expenses. Be sure to budget for things like utilities, maintenance, repairs, furnishing costs, and travel costs to and from your second home.
General Tax Implications. Talk with a CPA about buying a second home and how it could affect your taxes. A home that’s strictly a vacation residence, for example, will have different tax implications than a property that’s primarily used as a vacation rental.