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Owning a Second Home or Investment Property

For various reasons,  the idea of owning a second home or investing in property is on many people's minds nowadays. Some dream of having a second home in a more moderate climate. Others, wishing to diversify their investments, are considering real estate because of continued record low mortgage interest rates. If you're interested in the idea, but not sure how to get started, we've assembled some helpful information.

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http://plproperties.com/ImageGallery/54/2258.jpgSecond Home or Investment Property?
The process will be simpler and smoother if you can make some decisions about your lifestyle, needs, and plans for the property at the beginning. Generally, if you're looking for a place to spend the winters for several months at a time or to take frequent weekend getaways at the lake or river, then you're most likely considering the purchase of a second home. However, if you're looking to generate income or diversify your investments, then you're looking to purchase investment property.

Criteria
The criteria defining a second home are fairly loose. A second home doesn't necessarily mean a "house." It could be a condominium, a recreational vehicle or even a boat. Basically, for your second property to be  considered a second home by the IRS, it needs to have sleeping accommodations and cooking and toilet facilities. A second home qualifies for the home mortgage interest deduction, just like your primary residence, because you're using the home for personal purposes during the year. Many folks have second homes that are part rental. The catch is that your personal use needs to exceed 14 days or 10 percent of the time it was rented, whichever time length is greater. In addition, if you rent your home for fewer than 15 days a year, and personally use it for more than 15 days a year, you do not need to declare any rental income. Everyone's circumstances are unique. Consult a tax professional regarding deductibility.

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Looking Around

Do you want to buy a second home in your favorite vacation area, or a weekend spot not more than a few hours' drive away, but don't know what the market's like? You might want to do some research on the web using http://LeadingRE.com/ or visiting the web sites of the individual real estate companies in the area where you wish to purchase a property. Some real estate-related web sites allow you to tailor your search you select such as price, number of bedrooms/baths, type of home, or location sorted by zip code. If you're considering this home to be your future retirement home, then you also should consider additional factors such as the annual climate. http://www.weather.com/  allows you to view monthly climatic averages for cities around the country. You also might look for information and articles discussing cost of living or  best places to live for retirees" from groups such as the AARP.

 

The Transaction

You'll probably want to work with a local realtor to help with the transaction, especially if you're considering an out-of-state purchase. Your Premier Living Agent can refer you to a great real estate agent in the area you are considering.  A knowledgeable realtor should be aware of important factors that could affect your decision. For instance, if the locale you're considering has development restrictions, like those involved with historic districts where strict design, remodeling, or building codes may be enforced. In addition, the agent will do much of the legwork for you and ensure that all the bases are covered during the transaction. Just as you did when you purchased your primary residence, you should still have the property inspected.

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http://plproperties.com/ImageGallery/54/2260.jpgAdditional Responsibilities

Remember, owning a second home is just that-with all the associated responsibilities and expenses that it brings. How much maintenance are you willing to take on? If you're not willing to take on a lot of extra maintenance and yard work, consider buying a condo and hiring a property management company. Of course you'll need insurance. In some areas, you may be surprised by the rates you'll need to pay for homeowners insurance.  Coastal areas usually have higher premiums due to hurricane risk, and you may need to buy a separate flood insurance policy as well for waterfront properties.

 

Financing

Just as you did when you bought your primary residence, be sure to have your financial affairs in order before you even begin looking. Get a copy of your credit report and be sure there are no errors.   Also, be prepared to meet some stricter criteria to get the loan. This is because your finances will be stretched more thinly once you take on that second mortgage.

 

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