Owning more than one home was once reserved for the wealthy. Now, with continued low-interest rates and high equity in their primary residences, more and more people are discovering that owning two homes can be a savvy investment that’s well within their financial reach.
Besides the potential to build equity year after year, owners of second homes benefit from mortgage interest and property tax deductions similar to those on a primary residence. If a second home is rented for a portion of the year, there also may be deductions available for maintenance, utilities and insurance.
A New Kind of Owner
So who buys a second home? You may be surprised.
1. Pre-retirees : The skyrocketing housing market is prompting many people to buy while it’s still affordable, even if they don’t plan on retiring for several years.
2. Repeat vacationers: These folks return to the same parts of the country year after year for some R&R, but, rather than spend money on hotel rooms or house rentals, they make down payments on their own properties. The emotional benefits of these vacation homes can be as valuable as the financial one.
3. Parents of college students: Rather than renting school dorm rooms, some parents are buying condos or small houses for their college-bound children.
Buyer Beware
Purchasing a second home comes with a new set of financial concerns that differ from those of a primary residence. Talk to your real estate agent and consider these factors:
1. Is it a vacation home or an income property? If you use your property for personal purposes less than 14 days a year or 10 percent of the total days it is rented to others (whichever is greater), the IRS may consider it an income property rather than a second home.
2. Are you pre-qualified? It’s tough to get a second home mortgage, so talk to lenders before you start looking.
How will you care for a distant property? A townhouse or condo may be part of an association that takes care of maintenance chores such as fixing the roof and mowing the grass and can give you peace of mind. Also, consider hiring a property management company, which will handle routine upkeep plus emergencies such as a flooded basement. Ask your agent for a list of recommended companies.
