Introduction to Buying a Second Home
Are you a homeowner who’s thinking of buying a second home? If so, congratulations are in order. Being able to afford two homes puts you in an enviable position. To make the most of it, you should ensure that you go into your next purchase fully informed. Whether you’re seeking the perfect vacation spot or a prime investment, here are a few things to consider…
Who will be using it?
When you’re thinking of buying a second home, knowing its primary purpose is key. Are you looking for a personal vacation property—and a place to retire? Is renting your new home out to supplement your income part of the plan?
If becoming a landlord is in your plans, you’ll want to think about the renters you hope to attract. For families, specific layouts (which include multiple bedrooms) will work best. If you see your future property as more of a romantic getaway rental, a cozy space with special features (like a hot tub) may be ideal.
Consider your commute
Whether you’re planning to be the sole visitor to your second home or rent it out to others, location matters. How far are you—and those who may be interested in using your property—willing to commute?
Keep in mind that long distances from the city can be a deterrent for would-be renters. It’s also a good idea to be relatively close by in case of unforeseen issues like a burst pipe or a possible security breach.
Know your criteria
Beyond layout and approximate square footage, you’ll want to consider the overarching aesthetic that appeals to you. You’ll almost certainly be looking for different features, finishes, and appliances in a rustic cabin than you would in a luxury chalet.
Many buyers who were extremely practical about finding their primary residence take a less focused approach to searching for their second home. To ensure that you only tour properties that will meet your needs, create your criteria early on—and share it with your agent.
Understand your mortgage options
When you’re ready to obtain financing, you may want to use the equity in your existing home. Depending upon how much of it you have, obtaining a mortgage may be significantly easier than it was the first time around.
One option is to combine your equity with a line of credit. A big potential benefit of this approach is a more flexible payment schedule which will allow you to avoid a prepayment charge. In this type of arrangement, you’ll also have access to more credit as you pay down the debt.
Be aware of your tax obligations
Owning a second home can have tax implications. The first thing to be aware of is your future capital gains (that is, any increase in the value of your investment). No matter when you plan to sell, you’ll be taxed on 50 per cent of the profit (at the marginal tax rate). It’s applicable even if you plan to pass your second home down to your children!
If you’ll be renting out your property, it may also place you in a higher tax bracket because of the extra income. On the bright side, you’ll be eligible to deduct some significant expenses—from property taxes and insurance to maintenance and repairs. The key is keeping careful records of rental dates.
Starting an informed decision
When you’re ready to buy a second home, it pays to be informed. Working with the right professionals is the key. Find an agent who knows the ins and outs of purchasing a second property—and a finance expert who can help you form a beneficial tax-planning strategy!
Are you ready to find your ideal second home? We’re here to help. Take the first step today by finding the right agent!
