Buying a second home FinancingPurchase of a second home Financing
"We' re enjoying the notion that the place pays for itself," says Rox.
Indeed, according to the National Association of Realtors, the sale of second homes rose by almost 30% year-on-year in 2013. However, although the purchase of a second home can be extremely interesting, the choice also comes with its own one-of-a-kind monetary rationale. What will a second home be like?
So, while this holiday home you have seen may be small, it still does require the budgeting for a home loan, land tax, security, utilities as well as service charges - and some of these expenditures are likely higher than you think. Budgets about 1% of the sale value of the home for your total cost of ownership. So, if you purchased a $300,000 home, you'd save $3,000 a year for such joint pop-up charges as an accident management repairs to sanitary facilities or a new oven.
If you have an older house that could cause more problems, or if you are planning to lease it, go for 1.25% to make additional repair work. Do you really, really can buy a second home? Purchasing a second home is a monetary choice - not just an entertaining way to enjoy your free times - and it is one you should not make until the remainder of your finance is in top form.
Have you at least 20% own capital in your main home, plus enough money for a deposit of 20% and 3% closure cost for the holiday home? "You' also want to consider making sure things like collegiate savings are done before you begin to evaluate the buying of a holiday home," says Blaylock.
While second home mortgages are usually not as strict as they were a few years ago, creditors will still look carefully at your debt-to-income relationship, which is how much cash you have to spend each and every months on bills such as college loan payments in comparison to what you take home.
Generally, you should be able to house all your mortgages (including the holiday home) and the remainder of your debts with no more than 36% of your total personal earnings per month. When you can't get these numbers to work, this is probably not the right moment to jump for a holidaysmanse.
You buy it for the right reasons? A few folks may see a holiday home as a cost-saving instrument - they see it as a way to reduce the accommodation charges they pay every year when they travel. Consider it an investing-either as a place where you want to go into pension, or as a real estate you can offer for sale to complement your old age pension.
In assessing the long-term value of an asset, it is important to look at how the price has evolved over the course of your purchase in the marketplace. What are your plans for the use of the house? Remember also that there are very different taxation regulations depending on whether your second home is for your own use or whether you are renting it.
In view of the complexities of fiscal consideration and report on lease revenue, you should definitely seek advice from a qualified accountant before making a decision. Are you renting the house the right one? According to the NAR, from some point of view, the average sale value of the holiday home in 2013 was 168,700 US dollars and the average down payments 30%.
As you shop, take a look at similar homes near you on FlipKey.com or HomeAway.com to see how busy the renting business is and how other places are rated at night or week. "It will help potential tenants make estimates about how many days or how many week they will be renting it for and calculate their rents," Horndahl says.
Next, consider how appealing the home will be to prospective tenants: Are there any features or conveniences that make the real estate different? Ensure that there are some features that will help your home set itself apart from others in the area, making it a prime tenant option. Do you have to employ a caretaker?
Venezia says you should reckon with paying 20% to 30% of your rent for building administration work. Living a decent amount of space away from home, you are practical and have the spare moment to take care of the housekeeping yourself. Its also helpful if your resort is a condominium - where part of the servicing is done for you as part of your club expenses - or it is a newer home that may have fewer problems.
The house is in a dangerous area? You are the only one who can determine whether the site and the prospective rentals are valuable in terms of additional cost of insuring and the cost of damaging your home. Like with any large buy, make sure you do not buy a holiday home that is just emotional or impulsive.
Or in other words, take your sweet moments and find the kind of real estate you really want - and can buy. LearnVest Scheduling Services is a chartered asset manager and a LearnVest, Inc. affiliate that prepares finance budgets for its customers. The information presented is for illustration only and is not meant to be a substitute for professional investor, law or taxation advice. However, the information is not meant to be a substitute for professional opinions.
If you are a finance advisor, lawyer or taxation expert, please contact them for tailored guidance on your particular circumstances. Except as expressly indicated, the persons surveyed in this article are not customers, associates or affiliated companies of LearnVest Planning Solutions, and the opinions express are their own. LearningVest Planning Service and all third party companies mentioned in this news release are segregated and independent and are not accountable for each other's product, service or policy.