One would think that rising interest rates combined with already high housing prices, there would be a significant cooling of the market. That is not the case. In HomeLight’s Real Estate Top Agent Insights for Summer 2022, 95% of surveyed real estate agents say it’s still a strong seller’s market. But, despite that, 64% of agents report they’re seeing many buyers purchase their “second” home (usually in a remote location that’s more affordable) first.
Before looking for a second home, you must ask yourself a few questions to determine whether this is a good move for your family.
1. Can You Afford Two Sets of Bills?
One of the biggest concerns people have about buying a second home is whether or not they can afford two sets of bills. Not only will you be responsible for the bills you’re currently paying, but you’ll also have a whole other set of bills to pay. On top of the second batch of bills, you’ll also have new bills, like mortgage insurance and property taxes!
2. How Will You Save for a Down Payment?
On top of two bills, you need to figure out how you’ll get enough money for a down payment. Since you’re renting your current home, you won’t be able to tap into the property’s equity or take out a home equity line of credit. Some options you may consider to get a sizable down payment include drawing from a retirement account, borrowing money from friends and family, or getting a part-time job.
3. How long do you plan to continue to rent?
Rent is at an all-time high, and you’ve probably seen your rent increase over the past two years. It would make sense to have a timeline regarding how long you plan to live in your rental. You could have a solid plan, but circumstances can always change. You might need to have a plan or two, just in case.
4. What’s the plan for the “second” home when you aren’t there?
What do you plan on doing with your second home when you aren’t there? Do you plan on turning it into a short-term rental? If you are, you need to ensure that your mortgage allows renting. Indeed, it isn’t illegal to rent out a mortgaged property, but some lenders strictly prohibit this. But with that said, in most cases, you can begin to rent after you’ve lived in the home for 12 months. Of course, we strongly recommend talking to your lender, a lawyer, or an accountant.
Related Blog – 6 Things to Consider When Buying a New House
5. Are you able to keep detailed bookkeeping records?
If you find a lender that will approve short-term renting, you’ll need to figure out how you will manage the books. Will you hire a property management company to manage the property in your stead? Or, will you take care of the property (and every aspect of caring for the property) yourself? Either way, you’ll need to keep detailed bookkeeping records. You’ll need to track every penny your property earns and every penny you spend on the property.
Even though houses are far from affordable in most areas, it’s possible to save money by buying a second home. Heck, real estate agents estimate buyers could save $76,000! Remember that this purchasing strategy isn’t for everyone, so we strongly recommend doing your due diligence and talking to your accountant!