Whether you’re buying a second home as a passive income asset or for an expanding family, it pays to know everything about a purchase, especially a big ticket one. Here are four things that homeowners should fully acknowledge and prepare for before putting a down payment on a second home:
Consider Long-Term Objectives and Needs
Does a second home align with your future needs and financial goals? What’s the main intent of your purchase? Is it intended as a vacation home for your family when you’re visiting the country or state? Is it meant as a rental property for passive income? You need to have a good enough reason to justify buying a second home otherwise it could end up being a liability more so than an asset.
Consider Additional Expenses
A second property means doubling your utility expenses, HOA fees, insurance policy, and property taxes. It also means more costs for repairs and regular maintenance. Having a second home also means a second asset at risk during a natural calamity, like a flood or hurricane. These expenses may not be apparent when you’re looking at properties, but they slowly get introduced as you finalize the transaction.
Consider Tax Implications and Rental Policies
Depending on where you buy your second property, be it local or overseas, there are tax and rental laws that you’ll have to comply with. For instance, in the U.S., New York and California have the highest property taxes, both above $10,000 per year. Meanwhile, Delaware, Arkansas, and South Carolina only charge half a percent of assessed property values.
Consider Hiring a Realtor
A local real estate agent can simplify the process of buying a second home for you. They can help prepare a list of properties based on your needs and budget, prepare a reasonable buyer’s offer, and help negotiate the best possible price for it. A good one will also have contacts for independent contractors who can work on the property’s defects or routine maintenance.
Buying a second home is a luxury not everyone can afford. You’ll want to make sure you are financially stable enough to acquire a second property while also paying for ongoing upkeep and legal fees lest risk foreclosure on one or both properties.