For many individuals and families, purchasing a second home is the realization of a lifelong dream. Whether it’s a cabin in the woods or a condo by the beach, a second home can provide opportunities for relaxation and recreation as well as a place for family to gather and create a lifetime of memories. While a second home can also be a great long-term investment, there are several financial considerations to keep in mind before purchasing a property.
First, it is important to think about the implications of owning a vacation home in a particular location. While you are still busy with your career or a young family, the need for convenience or assistance in caring for the property while you are away may be of greater importance. Also, if your family thrives on adventure and exploring new places, returning to the same spot for each family trip may grow tiresome.
Second, once you decide on the location for this property you will need to consider financing options. Mortgages on second homes may have higher rates and require higher down payments than for a primary residence, and some lenders may not be able to lend in all markets. If you have paid off or have significant equity in your first home, you may be able to put a mortgage on the home or refinance to access cash for a second home purchase. No matter how you finance the purchase, make sure your monthly payment is well within your budget.
Third, it’s important to consider the costs of owning a second home beyond a monthly mortgage payment. Annual property taxes in other markets may be significantly higher than what you are used to, and utility costs can vary widely by climate and location. Vacation properties can suffer a lot of wear and tear, and since you won’t be there year-round you may need to contract for maintenance services such as lawn care or snow removal. Finally, homeowners’ association (HOA) dues can add another monthly cost. Budgeting for the true cost of ownership is important before committing to a second home.
Another consideration: many buyers of second homes plan to rent the property part-time to help offset some of these costs. Sites like Airbnb and VRBO can make this easy for vacation homeowners, but keep in mind that rental income is never guaranteed and can vary widely. The weekends where you can get the highest rents will likely be the weekends you want to use the property with your family, and HOA rules can complicate renting out a property. While renting a second home part-time can be great way to make a property more affordable, it shouldn’t be counted on to provide substantial income beyond the costs of ownership.
With these considerations in mind, owning a vacation home can be an attainable goal and a part of your family’s unique story. Contact your JNBA Advisory Team if you have questions about selecting, financing, or budgeting for a second home.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
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