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
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.
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.
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.
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.
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.
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.