Should You Buy a Second Home First?

Maybe you’ve watched those late-night infomercials showing how easy it is to buy and flip homes for massive profit. Or you’ve heard stories from friends who’ve made money renting out a house they bought or inherited. Perhaps you’ve been dreaming about that vacation home.

Whatever the reason, buying a second home is a big deal. It’s a riskier investment than most people realize, and it takes a lot of work. Here are some pro y cons before you take the plunge.

Some aspiring homeowners who live in high-priced real estate markets are taking a surprising path. They're buying their second home while continuing to rent their primary residence. The purchase may be a place to escape for the weekend, a place to spend vacations, or a place to consider renting to others as a money-maker. But it’s also in keeping with the widespread belief that owning real estate is a sound investment. "Property values have grown over time,” notes National Association of Realtors economist Lawrence Yun. 

“That price appreciation can provide equity for trade-up purchases” later in life. Even so, buying a home and continuing to rent may not necessarily be the right move for you. Before adopting this strategy, you should consider if the value exceeds the cost of a second home and if it is affordable. Weigh the pros and cons to determine if buying a second home is a sound investment.

Pros

It’s all yours — You can use it whenever you want and decorate and furnish it to your taste
You can travel light — No more heavy suitcases and checked baggage fees. Just leave the stuff you need in your second home
Lending is an option — Few gifts will buy you more gratitude from family and close friends than a free week somewhere great
You can retire there — It’s somewhere you love so why not?
You can rent it out — If times get tough, you may be able to cover some or all your ownership costs with vacation rental income
It’s an asset — Yes, property prices sometimes go down. But, in the long term, you likely stand to see handsome capital appreciation
You’ll be part of a community — The more often you visit, the faster you’ll become a familiar face. You could make abiding friendships and lay down roots
You may get tax advantages if you rent out for as little as two weeks per year — Consult a tax professional
There may be opportunities for you to do home exchanges — You lend your vacation home to another owner who in return lets you stay in hers somewhere different

Cons

The house costs more than it's worth, meaning you will likely lose money on your investment.
You will need to pay additional bills and taxes.
You will have a second job as a landlord if you are renting your home to others.
You will likely lose money due to the poor resale value of your home.
Bottom Line
Renting a primary residence and buying a second home may be a good investment strategy for those who can find a desirable property at an affordable price. A second residence can provide you with a readily available vacation spot, as well as a steady revenue stream from renters. Should you decide to sell your property at some later date, you will need to make sure it has the proper value to attract buyers to make a nice profit.

If you’re considering a second home, contact one of our real estate agents who can help walk you through your options.
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