For many people, buying a second home is just a dream but for select few, affording a vacation home is a reality. While owning a second home is a dream come true for most people, it does have its downsides in addition to its benefits.
Obtaining Financing for Your Property Can Be Difficult
You more than likely won’t be paying for a second home in cash. You will need to obtain financing from a mortgage lender, which is easier said than done. Getting a mortgage company to give you a second mortgage or funds towards a second home is much more difficult than when you got your first mortgage. The reason being, the standards and guidelines for a second mortgage will be more stringent and strict.
You will more than likely be denied a second mortgage if you don’t have:
If you are planning on purchasing a second home, be 100% certain it’s a place you see yourself retiring to in the future. It’s not a decision to take lightly and you should never impulse buy a second home. Selling off your primary home will be much easier than selling your primary and secondary home just to live somewhere else once you’ve reached retirement and decide the location is wrong for you.
You Can Obtain Long Term Profits for Retirement
Most of the time, real estate values tend to increase, but the market can be unpredictable. Therefore, it’s possible your property could appreciate or depreciate in value over time. Vacation homes can provide you with long term profits to help with your retirement plan if you decide to rent it out. Keep in mind that you will need to take into account hidden costs like maintenance and repair issues, as well as taxes.
There May Be Tax Incentives and Deductions
After purchasing a second home, you may plan on renting it out for parts of the year when you aren’t occupying it. There are essentially two options if you plan on renting out your property when you are not using it that can have tax implications:
- If renting the property out for no more than two weeks per year, interest you pay on mortgage and the property taxes are fully deductible from your gross income
- If renting property for more than two weeks per year, interest and taxes aren’t deductible, while some operating expenses are. You will also have to report rental income.