At some point in your life, maybe now or sometime later in the future, you may consider investing in a second home. There could be many reasons that get you to think about doing so, but when the thought pops into your head, you may find that it’s hard to shake. Whether you’re doing it for lifestyle or financial reasons, you will find that it’s important to consider the pros and cons of making such a big decision. Because a big decision it is. Going for a second home can come with a lot of exciting prospects, but it also has its drawbacks – as you may not be realizing. So how are you to decide?
That’s where this post comes in handy. If you’re seriously considering investing in a second home, then you need to weigh up each side of what this could mean for your family, your lifestyle, and your finances. Just like you have an expectation with decoration, and soon face a harsh reality, it can be the same with property investment – and the decoration part is also very true too. So before you rush into any decisions that you may later regret, let’s take a look at the positives and the negatives that you need to consider.
An Additional Income
One of the most alluring aspects of investing in a second property in the additional income that you’d be looking at receiving. When you’re interested in buying an investment property, you’re often keen to get the right return for your money and as long as you shop smart, a second property will be able to give you an additional income at a healthy rate for as long as you want it to.
A Holiday Home
However, sometimes, a second home is more about a lifestyle choice than a financial one. When you live in one part of the country, especially a city or busy town, and you’d like to get away to the coast or the countryside as often as you can. Or you may want to buy another property in an area where you have family. So buying a vacation home can be great for this. You not only get more space, but you know that you’re making an investment in your family.
A Future Investment
Another strong pro combines the previous too, because a second home can often be a viable financial and lifestyle choice. When you buy another place, it can often be seen as an investment in your future in two different ways. The first is somewhere to keep some money, so that you can sell the property later on in life. Or, you want to buy it for your retirement, so that you can sell up where you are now and move to your second home later on in life.
Or maybe you like the idea of having a part-time rental home somewhere else around the country? You may want to spend some time in the city for work, or in another city that you sometimes like to escape to. Then, you could even list the entire house or your master bedroom for rent when you aren’t going to be there. Then, you can enjoy the second home as you please, and make some money back when you’re not in town.
And then there’s the idea of your second home being the start of something new. If you’ve always like the idea of having a property investment portfolio, your second home can often be the start of that. There’s a lot of wealth in real estate if you’re interested in chasing after it, so something making that first investment outside of your own home is all you need to get the ball rolling.
The Initial Cost
In terms of the negatives aspects of going for that second home, the elephant in the room is most definitely the initial cost. Sometimes, it’s hard to raise the capital to be able to get the second home in the first place – and it’s a very real downside that may stop you from moving forwards. If you’re not able to get that second mortgage, a second property may not even be an option, so you need to keep this in mind.
Then there’s also the risk that comes with buying a second home. Because not only is it a big investment to make, you’re also not guaranteed to make your money back, especially if the market crashes. If you can’t find anyone to rent it, or even sell it on, you may be stuck with a dead end investment that quickly becomes a drain on your resources.
You should also think seriously about the tax implications of buying a second home. Depending on your local laws, you could end up paying a lot of money in tax when you first buy, or even going forwards. So before you think you have enough budget to make the investment, you have to consider all of the avenues, like tax, which could come as a surprise.
Then there are the expenses that come with buying the second property in the first place. If you are hoping to rent it out, you’re going to have mortgage payments and monthly taxes that you’ll have to pay – whether there’s someone living in it or not. So if you aren’t able to find a tenant right away, this is something that you not only have to be aware of, but also happy with in case it becomes a possibility.
And finally, you should also consider the upkeep. If you’re going to keep the money in your investment, you have to maintain it. Not only will this involve things like cleaning and mowing the lawn. Also real renovations to keep the decor up to date and the building in a good condition. Especially if you want the property for your retirement. So keep this in mind when you’re budgeting for costs.
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