Can I Afford to Buy a Second Home?
Digital Vision
A vacation home can serve as your own little oasis where you can escape your bustling schedule and decompress from the workweek. Not to mention, a pool-clad or beachside second home serves as a needed respite from temperatures soaring through the nineties.
But before you buy a vacation home, read on to learn more about the process and decide if it’s time for you to buy your own weekend getaway.
Practicality
When you’re figuring out how to buy a second home, the first thing to acknowledge is that it’s a huge commitment, which is why you need to realistically evaluate your decision. More than 80 percent of second-home owners bought their house in driving proximity to their primary residence, according to the National Association of Realtors (NAR). Although having a house in the Caribbean is alluring, it’s time consuming and expensive to fly there for just a weekend trip.
[More from Manilla.com: The Challenging Accountabilities of Homeownership]
Affordability
Although many second-home buyers pay cash, you can still enjoy the luxury of a vacation home without it. The NAR described the profile of a typical second-home purchaser in 2012 as having a median age of 45 and earning a salary of $85,700. Half of these second-home buyers used a mortgage to help cover costs.
Generally, mortgage lenders require larger down payments on second homes and higher credit scores. If you’re worried about paying your mortgage bills, renting your home is an option for extra cash flow. Keep in mind that there are specific tax rules about renting. For example, there is a federal income tax break that does not require you to declare income from rent if you rent your home for less than 14 days. Therefore, you’re able to deduct the interest you pay on the mortgage when you prepare your taxes.
[More from Manilla.com: 10 Steps to a Financially Organized Life]
Now that you know a second home is within reach, it’s important to calculate the other costs, like insurance, unforeseen repairs and general maintenance. Because many vacation homes are near woods or bodies of water, there is a higher chance of a natural disaster, which causes home insurance premiums to rise.
Some vacation homes tend to need more maintenance because they are in areas that can experience adverse weather conditions. For example, a beach house can require many repairs after a large storm. Even without storms, houses near the ocean can erode from the salt. Experts advise budgeting approximately 2 percent of the home’s total value every year for upkeep.
In It for the Long Haul
Homes are not a liquid investment. If the real estate market fluctuates or declines, it’s not easy to sell quickly. This is especially the case for vacation homes, because fewer people are in the market to buy a second home, especially during times of economic hardship. That’s why it’s important to view real estate as a long-term investment. If you will eventually consider resale, sway toward purchasing a home in an easily accessible location.
[More from Manilla.com: Manilla Mini: How to Simplify Your Retirement Expenses]
Although isolated homes are a lovely slice of paradise, it may be more difficult to use and sell a home that is off the beaten path. If you’re buying a second home, you’re going to want to make the purchase worthwhile, but are you OK with using the home as your only vacation destination? The financial burden of the home may make it your permanent vacation spot.
If you think this house might eventually become your retirement home, evaluate whether it’s practical for the long-term. For example, if the master bedroom is up three flights of stairs, you may want to find a house that is more user friendly. If your retirement plans might require an addition for a growing family of grandchildren, check out zoning laws and construction restrictions before you buy. Lastly, consider whether your retirement plans need to include a state with lower real estate or income taxes and factor that into your decision.
More from Manilla.com:
