Is Buying a Second Home a Good Idea?

Owning a second home is an exciting accomplishment, but what should you consider before purchasing an additional home?

Family heading to the beach

Perhaps you’ve always dreamt of owning a second home. Maybe you’ve wished for a beach getaway, a mountain escape, or somewhere to eventually settle down and retire. Before deciding to make your purchase, consider the benefits and drawbacks of owning a second home.

Benefits

  • A second income. Owning a second home means that you also now own a property to rent! With the increase in the use of rental apps such as AirBnB, renting your place is easier than ever. You can use the generated income to subside your mortgage, or have another income source if you have consistent renters.

  • A place to vacation. Spending money on vacation rental properties can be pricy. Having your own destination to head to when the holiday rolls around can save you money. Not to mention that having a set location to vacation, can bring new memories and sentimental value to the home, which are priceless.

  • Potential appreciation. Consider closing costs, maintenance upkeep, and rates of return, when looking at a second home as an investment property. Your home might have the potential to appreciate over years of ownership. A home's appreciation is calculated based on the fair market value of comparable homes for sale in the neighborhood, with the national average for appreciation rates being three to five percent.

Drawbacks

  • Initial purchase cost. Purchasing a second home can be pricier than expected. Not only does the buyer incur the cost of purchasing the home, but also has to pay appraisal and inspection fees, closing costs, and will likely need to furnish the home. Furnishing the home with everything from furniture to linen and dishes can easily exceed 25 percent to 33 percent of the purchase price – Yikes!

  • Difficulty finding renters. Owning a second home is great when you have the availability to be there, but what about when you aren’t using it? Hopefully, you can find renters, but it takes time and money to market your property, and select the right renters. Everyday your property sits empty is a loss of profit, so be prepared to pay your mortgage in the event you are unable to find tenants.

  • Maintenance and upkeep. Taking care of a home can be expensive. Unexpected problems, routine maintenance and upkeep, all add to the cost of owning a second home. If a pipe bursts or appliances break, you will have to contact a repair company, schedule appointments, and meet them at your second home. Consider you may spend an entire trip working on the property.

  • Distance. Purchasing a home that is hours away, or across the country, may not be ideal for weekend getaways and quick trips. If you are planning to purchase a home that is a far distance away, plan longer trips less frequently to avoid high travel costs.