A second home is primarily a life quality investment. Here are some reasons why buyers often seek out these homes:
Main reasons to buy your second home:
- To Belong: Second homeownership means having a second community. Owners can integrate, learn from the locals, discover the best restaurants and venues, and meet with likeminded neighbors.
- For Wellness: A second home, especially those with access to the outdoors, can represent a much needed change of pace and may be integral for the wellness of some owners.
- For equity: Since homes generally appreciate in value, a secondary residence may serve to place savings into an asset, and perhaps even gain if resold for a higher price.
- For retirement: A second home can be bought for eventual retirement and be used for vacations before that happens!
- To rent: You could use your vacation home to generate rental income when you’re not using it. If you prefer not to rent it out, you might qualify for lucrative tax breaks on mortgage interest and property taxes.
A Second home as an investment?
If considering a second home as an investment, it is essential to keep expectations in check with reality. To assess the viability of such an option, one should carry out a cost-benefit analysis. The costs of upkeep, insurance, taxes, and fees could define whether a second home will work as an investment property. These costs, as well as any risks, must be weighed against your estimated benefits.
Types of second home investments:
Rental (short-term)
A short-term rental system can allow an owner to continue using their home while generating income that can partially or fully cover operational costs. Because of constant use and upkeep, the home may stay in good shape. On the other hand, such a system requires constant maintenance and cleaning, well-kept furniture and full decor, possibly higher insurance, and constantly communicating with guests. Renting comes with a degree of responsibility towards and for the guests, and in some cases could create legal responsibilities. All of these aspects mean that a short-term rental will likely require professional management. Unfortunately, the success of a short-term rental may fluctuate to the point it may not be beneficial.
Rental (long-term)
A long-term rental also generates income, which is usually more consistent and requires less effort, as owners don’t need to constantly look for guests or furnish the home ahead of renting it. Such an arrangement also lets owners research and vet prospective tenants. On the other hand, long-term rentals are usually cheaper, generating less for the owner. Landlords may struggle to find a tenant for months or longer, or struggle to collect due payments from tenants. Daily living will also often result in greater deterioration of the home.
Personal home (for resale)
Buying a second home intended for the owner’s actual use usually means the home will stay in good shape, and be enjoyed at the pleasure of the owner. On the other hand, buying a personal home for actual use means it will generate costs and no income. Since it is not a primary residence, insurance costs may be higher and professional management may be needed, especially for vacant periods of time. Unfortunately, owners can not know for certain if their home will sell at a higher enough cost for reselling to present a tangible financial benefit.
Once you decide if any of these investment models would work for you, or if you would simply like to purchase a second home to enjoy or rent, we have some tips to guide you with your purchase.
Tips for your purchase process:
Step 1: Plan expenses
Make sure you are prepared to face the financial commitment your second home will require. Plan to cover the down payment, taxes, insurance, any applicable local fees, as well as operational expenses such as utilities and management fees. When budgeting, also keep in mind applicable tax deductions.
Step 2: Find the perfect area:
Find the right residential area for you. A safe bet is to look for a neighborhood or community that speaks to your lifestyle. Find a home near activities or locations you enjoy. If you love winter sports, a chalet near the Alps may be perfect, but if you love sun-bathing a charming villa by the Spanish coast may be more suitable. Think about the size of the community, access to recreational activities, scenery, culture, style, and amenities to find the perfect fit.
Additionally, you must consider distance and frequency of use. For frequent short stays it may be best to find a home within driving distance, but for longer spread out stays a home in another state or country could be great. Generally, the greater the distance to your primary home, the more challenging and costlier both visiting and managing may be.
Step 3: Decide on use:
You must decide whether you will be using your second home exclusively or renting it in some capacity. It is crucial to check whether any local or community regulations prevent renting.
Step 4: Select the type of home:
Once you know the general location you would like and how you would use your second home, it is time to select it. We recommend comparing all options to settle on the best fit. Do you want a house, apartment, townhouse, condo, co-op, cabin, boathouse, or some other option? That is something only you can decide. Still, we recommend that you rely on a seasoned real estate agent to assist you in finding the perfect second home!
Step 5: Choose the type of ownership:
After narrowing down which home you want it is time to decide on the type of ownership. Sole ownership comes with many perks, you are in full control of your home. However, it can be cost intensive and time consuming. Co-ownership shares the burden of cost and management, while also increasing your purchasing power. Unfortunately, handling co-ownership without a neutral third party can present several obstacles.
The safest and most efficient co-ownership method may be a fully managed home under a limited company, as done by Secconda. Using state-of-the-art scheduling technology and transparent processes, we offer to simplify and modernize second home ownership. If you can’t find a home in the area of your preference, you can also submit an open listing for our consideration. If deemed a good fit, we can turn it into a Secconda and find the remaining co-owners.
Step 6: Closing
After making an offer you and the seller will negotiate and come to an agreement. Before closing we suggest conducting a professional inspection and appraisal, as well as a conclusive tour.
When purchasing a Secconda our dedicated team will support you throughout the closing process. After all co-owners are found, they hold complete ownership of their home. Secconda provides full management services at the pleasure of the co-owners.
The process of finding a second home can seem daunting, but the memories and lifestyle that result will most certainly be worth it. With Secconda you can count on a streamlined purchase and ownership process. We are here to help before, during, and after you buy the second home of your dreams!
