Owning your own little piece of paradise isn’t as hard or uncommon as you might think. Vacation homes are a popular choice as an investment opportunity whether you’re looking to rent it out for extra income or keep it all to yourself. No matter the purpose, homes are appreciating, and choosing the right spot could make a leisurely walk on the beach or jaunt in the woods beckon from right outside your door.
Have a purpose
Though being able to say “I’ve got a little place near the lake” is an enticing reason to make the investment, you need to have a purpose for the home up front. There’s a distinct difference between owning a second home or an investment property that determines your rate.
Second homes are for your exclusive use, no long-term renters allowed. You must also live there at some point during the year and be located a “reasonable distance” from your primary residence. These homes qualify for mortgage interest tax deduction.
Investment properties are for the purpose of renting the space, letting it appreciate, and eventually selling for a profit. They carry a higher interest rate due to the liability that the buyer doesn’t require the property for residence and can more easily walk away from payments. Mortgage interest for investment properties can be tax deductible as a rental expense.
It’s important to clarify, truthfully, what the purpose of your home will be when applying for a loan. Claiming a property as a second home when it’s really an investment property for a lower rate is considered mortgage fraud.
Owning property where you love to visit is one of the greatest feelings, aside from buying your first home. The places you consider your honorary home, like the slopes you and your family venture to every winter or the city with your favorite museum, will now literally be your second home. Plus, homes in desirable areas are more likely to retain their value and appreciate with time.
Just like your primary home, the mortgage interest and property taxes on your second home is tax deductible, which is always a nice perk when April rolls around. You can also “rent out” the property for up to 14 days in a year tax free without it becoming an investment property. Look to Airbnb and similar marketplaces for help with that.
Family gatherings are a breeze when there’s a familiar, inexpensive place to stay. Family trips will be seen as a proper vacation when located where people love to spend their time, and memories will be treasured for generations to come.
Can you afford it?
The most important question in the hunt for a second home is the cost, and the initial investment can be steep. Along with the initial purchase price and closing costs, you’re looking at the taxes, fees, utilities, and maintenance of a complete second home. Don’t forget that you’ll need to furnish it, too. You don’t want to get settled in to your vacation just to realize you never bought forks for the new place!
You may also want to look into a local property management company to take care of it while you’re away. Traveling to your vacation spot every other month can get tiresome if you’re just there to mow the lawn.
Home, Sweet, Second Home
The truth of the matter is if you’ve ever looked into buying the second home for some seasonal getaways, there’s no better time. Rates are historically low, homes are appreciating, and vacation spots are in high demand. Mortgage companies are happy to work out a comprehensive plan with you for affording a second home to create wealth, treasured family memories, and a little slice of paradise for years to come.