The biggest misconception most people have about buying a second home is that this activity is only for the mega-rich. In reality, buying a second home is a lot more affordable than you probably realize.
Most people dream of owning a home. If you have made your dream of owning one home a reality, you might want to consider purchasing a second home. A recent study found that over 5.1 million Americans own two homes.
Are you looking for tips on purchasing and managing a second home? If so, keep reading!
Funding The Purchase of a Second Home
One of the first things you need to figure out when trying to purchase a second home is how to pay for it. One of the most common methods used to buy a second home is getting a mortgage loan. If this is on your mind, you need to realize that the requirements for a second mortgage are a bit more stringent.
Most mortgage lenders require a higher credit score on a second home loan. These loans usually contain higher interest rates as well. There are also other lending options you can explore to fund your second home like:
- Home equity financing
- 401(k) loans
- A reverse mortgage
- Cash-out refinance
Once you figure out the method you want to use to fund your second home purchase, you will need to start searching for properties.
Finding a Great Location
The average person looking for a second home wants to find properties in a picturesque location. If you want to use your second residence as a vacation home, buying a property near a beach, mountain, or a great skiing venue is a no-brainer.
Making a list of what type of environment you want to purchase a second home in is crucial when narrowing down the vast selection of places around the world. If you want to buy a home in an area with beautiful scenery and great weather, then Maui, Hawaii is a fantastic option.
Living in Maui allows you to take advantage of things like:
- Abundant natural resources
- Long-term property appreciation rates
- Great dining options
- Breathtakingly beautify beaches and weather
- Low mortgage interest rates
With all of these advantages, it is no mystery why Maui is one of the fastest-growing cities in America.
Consider How to Mix Business with Pleasure
As you start to explore the possibility of buying a second home, you need to familiarize yourself with how the IRS classifies these properties. In most cases, the IRS will classify a second home as an investment property. This means you have several deductions you can take advantage of.
Things like maintenance costs, mortgage interests and the cost of operation can all be deducted from your annual tax filing. If you want help paying the tax debt your second home may incur, then you should consider renting or leasing it. When buying a property in a popular vacation destination, such as Maui, you will have no problem finding interested renters.
Before you jump head-first into renting your second home, you need to realize there are drawbacks to consider. If a renter damages your property, you will be responsible for fixing this damage. However, with the right insurance policies and a thorough vetting process, you can avoid turning your second home into a money pit.
Hiring a Property Manager is a Good Idea
If your primary residence is located far away from your second home, you will have a hard time maintaining it. Instead of allowing your second home to fall into a state of disrepair, work with property management professionals. An experienced property management service will be able to maintain and repair your second home for a reasonable fee.
These services can also help you run background checks on potential renters. By doing this, you can weed out potentially bad renters and keep your second home safe. The money paid for this professional help is worth it due to the problems a property management company can help you avoid.