Buyers consider second homes for multiple reasons. You can purchase a second home for straight rental profit, as a vacation home or second residence for yourself and your family or as an investment or flip property. By anticipating the nuances and trends of local real estate markets and keeping your finances in good order, you can earn profits with each type of second home.
The Investment Home or Flip Property
With foreclosures frequent in the market, you may be tempted to purchase an investment property. Flippers can make excellent profits by purchasing foreclosures, properties encumbered with tax liens and from families wishing to sell immediately due to relocation or financial hardship.
When purchasing this type of property, it’s important to get a detailed estimate on how much renovations and repairs will cost, monthly utility bills and property taxes. While you’re repairing a property and have the home on the market to sell, you’ll be responsible for all of these expenses.
Without excellent credit and equity, securing financing for an investment home or flip property can prove difficult; banks stand to profit by offering loans for these short-term ventures, but it’s still a risk for them in a recovering economy.
If you’re able to invest in a flip property, it’s important to think carefully about your decision and avoid impulse buys. You should personally vet each potential property yourself with the help of a trusted contractor. For timely results, plan on being available to supervise renovations on the project as well-meaning it may be best to buy the second home local to your primary residence. This is also a safer bet if you’re purchasing without the help of a real estate agent as you are likely most familiar with the neighborhood.
The Vacation Home
If you’re hoping to enjoy the fruits of your labor, buying a vacation home may be the best option for you. To make the vacation property a viable investment, consider purchasing your second home in a current or emerging vacation market. Your ability to spot strong, emergent real estate trends can earn you major profits if you need to sell your second home later.
When you’re not using the home, you can also monetize on it as a rental property. Many vacation home owners find that the rental income is enough to pay for property taxes and repairs.
The Rental Home
Investment properties and vacation homes can easily double as rental homes. This can provide a source of income for you while you’re not using a second home or if the home is on the market. Alternately, you can also purchase a top-condition property with the immediate intention of earning on rentals.
Consider all angles of your finances before you purchase a rental home. If you’re at a low or moderate income level and wish to use FHA (Federal Housing Authority) loans, the FHA ceased counting rental income towards eligible income requirements for second homes in 2009.
Many buyers investing in second homes use the second home for more than one purpose. As you look for money-saving uses for your investment, always consider tax concerns and liability. Document all dates and occupancy for each property and consult with a trusted financial advisor regarding investment properties.