You might be thinking, ‘one home is hard enough to manage, how could I begin to maintain two?’ While it’s true that owning and maintaining a home is no easy feat, there are plenty of rewards that come with buying a second home. One benefit is that it can serve as another source of income. You can use the second home as an investment property and rent it to tenants. It has been said that real estate is one of the best investments during inflationary times, and you can build your wealth with a second home. If you rent out your second home, you could receive tax deductions for certain expenses associated with maintaining the property. Here are other things to know about purchasing a second home.
A Second Home is Good for Vacations
If you and your family visit a certain destination every summer or winter, then you can purchase a vacation home there instead of wasting money on pricey hotels. In addition, a vacation home is excellent for having a private place to enjoy each other as a family without a lot of interruptions from the outside world. Or, if you travel for business in a certain city frequently, then a vacation home can help you shave off lodging costs while still enjoying your business trips.
You Want a Home for Your Parents
If your parents are still able to live alone independently but you want them to live closer to you and the grandkids now that they’ve retired, you can purchase a second home for them to make this happen. Obviously, before you take this step, you should have a conversation with your parents to find out if this is something that they would be interested in.
You’ll Need to Budget for Mortgage and Expenses
If you plan to purchase a second home, then you’ll need to budget for the mortgage and expenses associated with it. Before you meet with a realtor, you want to get a preapproval letter from a lender because this gives you an idea of how much you can afford on a second home. You should also consider the extra costs of maintenance, taxes, utilities, and insurance. This is especially important if you’re renting out a second home.
Second Homes Can Be a Part of Retirement Planning
If you plan to retire soon and you want to downsize to a smaller home, you can purchase a second home and sell the home you currently live in. One way to fund your second home is to use the equity in your primary home to do it. Another option would be to pay for the second home with any assets you have such as dividend income, savings, or inheritances you may have received. Before you buy a second home for retirement, it’s a good idea to have an emergency fund so that you can cover unexpected expenses that may arise.
Tax Tips for Owning a Second Home
You can make tax deductions on your second home, but the limit on those deductions is up to $10,000. If you’re renting out your second home, your rental income will be tax-free for the first 14 days of you renting it out. After that, you’ll pay taxes on it.
What About Consolidated Mortgages?
A consolidated mortgage is a strategy that you can use if you want to purchase a second home while still paying off your primary home. With a consolidated mortgage, you combine your current and new mortgage into one loan. The loan can come with a decent interest rate, making it more efficient for you to manage both homes.
With these considerations and tips, it is possible to buy a second home without causing a lot of financial stress. If you’d like to further explore what your options may be, reach out to me or one of my team members who are also knowledgeable lending experts, to discuss a second home.