Buying a Second Home

In spite of the current state of many real estate markets the time is right for the purchase of a second home.  In a slower market with lower prices and great deals on valuable homes there has never been a better time to get your hands on an investment property.  For many years the second home may have seemed like something that was beyond the reach of the average home buyer.  High prices and a lot of competition for available homes made it somewhat difficult to justify the purchase of additional real estate.  However that has changed as the market has slowed down and home prices have returned to a somewhat more reasonable level.

The purchase of additional real estate has always been a fantastic way to increase your personal worth and monthly income.  Whether you are thinking about additional properties for income or for a quick renovation and flip, there is great money to be made from the purchase of real estate.  Over the years, real estate has continued to be one of the most stable of investments you can invest your money in, as stock markets and such are open to large fluctuations and dips, as we've all seen recently.  Homes, on the other hand, always seem to appreciate in value even in a "down market."  The rate of appreciation may slow down at times, but the appreciation is steady.

Talk to us about owning a second or vacation home.  The time may never be better than it is right now.  Buying a vacation home when markets are hot only means you stand to gain less appreciation in the long run.  When markets soften, that's the time smart investors get off of the sidelines and in to the game.

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Buying a Second Home

A vacation home or condo can be a good investment, provide rental income, give you a major income tax deduction, and even turn into your residence after retirement. But before you can have any of those benefits, if you are like most people, you will have to find a loan to purchase that summer home.

When it comes to taxes, the IRS lets you treat a vacation home the same way you do your first home, but a vacation home can be harder and more expensive to buy than a primary residence.

The IRS will actually let you write off the interest on two separate homes for up to combined total of $1 million in mortgage debt.

While the IRS treats both the primary and vacation homes the same tax-wise as far as the deductibility of interest paid (capital gains, however, are an entirely different matter) lenders do not. Getting a lender to agree to loan you the money for a second home is more difficult because second homes are riskier.  Your lender knows if times get tough, money gets tight, and you can't afford to pay two mortgage payments, odds are you will make the payment on your primary residence and let the second one slide.

When you buy a second home, you must also have a cleaner credit history, a higher FICO credit score, and more discretionary income to qualify for that mortgage. Buying a second home means you are committed to furnishing and maintaining it and paying the monthly utilities, taxes and all the other costs associated with home ownership. In some cases, your monthly housing expenses will double, and the lender will want to ensure you have enough income available to cover the increased costs.

For millions of Americans, the advantages of a second home — vacation destination, price appreciation, tax benefits and rental income — far outweigh the costs and disadvantages.

What do you think?  Is a second home in your future?  Leave us your thoughts, comments or questions.