Getting handed the keys to your new home is a feeling you’ll never forget, but the thrill can quickly fade into buyer’s remorse if you don’t take the time upfront to make sure it’s the right home for you. Buying a primary home, investment property, or secondary residence is an exciting time, but it’s easy to get caught up in the exhilaration and forget about important aspects of making such a big purchase. These important tips on investing in a primary residence or second home could help keep your American dream from becoming a nightmare.
What Qualifies as a Second Residence?
If you’re considering financing the purchase on a secondary residence, be sure to check with potential home lenders on how they define a secondary home. It can differ significantly from one mortgage lender to the next. For example, some lenders require that a second residence be at least 50 miles away from a person’s primary home. Also, they may want to know how much time you intend to spend there because if you never spend any time there, it might be considered an investment property instead of a secondary home.
Typically, a secondary residence is defined as a place where a person lives only part-time. A second home can be a vacation home, apartment, resort property, or secondary home, and you can have more than one.
Always check with your tax advisor before buying a primary or secondary residence. Typically, you’re allowed to rent out a second home for up to 14 days per year without claiming the income on your taxes. If you want to rent the property for more than 14 days a year it will likely reclassify the property as an investment or rental property and the income will probably be taxable. The tax deductions also change substantially.
Keep in mind that the longer a home sits vacant, the harder it is to keep secure and prevent vandalism or theft. Having robust security in place at your vacation home is essential. You might want to consider fencing, video surveillance, property management, or making arrangements with your neighbors.
Care and Maintenance
Just like your vehicle, homes also need regular maintenance. They need repairs when something breaks, landscaping, painting, and other types of consistent upkeep. Deferred maintenance can lead to depreciation and more costly repairs later. Who will do the repairs and maintenance on your home(s)? You may want to consider hiring a property management company and purchasing a home warranty.
All home loans require homeowners insurance. Even if you pay cash, it’s vital to keeping your investment safe and secure with coverage. Some insurance companies won’t cover a property that is vacant for long periods. You may also have to pay a higher premium than you would for a primary residence.
Even if you don’t have any intention of renting out your second home, it’s a good idea to hire a property management company to do regular checks on your home and to oversee repairs and maintenance in your absence.
Don’t ever rush into a purchase of real estate. It’s vital to take your time to evaluate all the pros and cons and check with your tax advisor first. Of course, we at Primary Residential Mortgage are always here to answer all of your questions.
Note: Opinions expressed are solely my own and do not express the views of my employer