Purchasing a second home can be a very exciting venture. One that can offer you a different lifestyle in a different part of the country, or even a different county. What is more, a second home could be more than just a personal pleasure venture but a shrewd investment that offers you a potential financial return. 


Although the benefits and attractions of owning a second home are plentiful there are certainly a lot of considerations to be made before embarking on such a huge decision as purchasing a second home. To help you fully appreciate all of the factors at play when contemplating owning a second home here are some of the considerations to be made. 


Photo credit Leandro Rosatti from Pexels 

Why do you want a second property?

When it comes to purchasing a second property it is vitally important to consider the reasons you want this property as this is likely to have a knock-on effect on the subsequent decisions you make. 


If you want your property to be a second home that you escape to in the summer months then of course this will affect the location, size, expense, and how you sustain the funding of property, such as whether you opt to rent it out as a vacation home. A lot of your decisions may well be made on a personal basis to suit you, your needs, and your lifestyle. 


If you want a second home to serve as a nest egg for the future and to help provide you with financial security into retirement then the decisions you make will be based solely on what the property can provide you. What the property can give you the best financial return for the smallest outlay. It should be a decision very much guided by the facts and not just influenced by the heart and lifestyle choices. 

Fully consider your finances

As with your first home the financial responsibility of your second home falls on you. You may rent your home out either for vacation rentals or long terms leases but ultimately the overhaul responsibility to meet the associated payments is yours. If there is a plumbing problem, then you are responsible, a heating problem, yes you are responsible and this is in addition to your main residence. 


As well as the additional repair bills there will, of course, be additional insurances, taxes, and maintenance expenses. It is very important that these factors be given due care and attention when putting together a budget for your second home. Your budget should be as detailed as possible and allow for a contingency fund for unexpected expenses.


To help you when assessing your finances take into account some of these financial considerations; 


  • How much available cash do you have? Being asset rich is great but when you are multiple homeowners you will need to have disposal cash within easy reach. A good idea is to have at least 6 months’ overheads (i.e. mortgage payments, utilities, maintenance costs) available on demand. 
  • Have you considered the additional finances you will need to effect the purchase?
  • Do you have a mortgage on your primary residence and are you able to meet all of your financial obligations with ease? 
  • Do you have any outstanding debts, loans, or credit cards?
  • Can you still save for your retirement if you take on a second home?


If your answers to any of these questions are in any way unclear or raise doubts as to your financial security then tread carefully when it comes to taking on a second home and the financial obligations that it brings with it. 


What about a mortgage?


If you taking on your second home with the help of a mortgage then this will require even further consideration, especially if you already have a mortgage on your first home. If you do have an outstanding mortgage on your first home then you will need to bear in mind that you will need a substantial downpayment on your second home. Typically you will need at least 25% of the overall purchase costs before a lender will consider you for a mortgage.


Further, a mortgage lender will not provide you with a mortgage loan if they do not consider you to have sufficient income to pay your costs. They will analyze your income and expenditure in full before being prepared to grant you a second mortgage, so be prepared to hand over full disclosure of your monthly in and outgoings. You will also need to be prepared to disclose your employment history and any other assets you have. To help improve your chances of being granted a mortgage then consider how you can consolidate debts and credit cards to put you in a more attractive financial position. 


Photo credit Kelly L from Pexels 

Renting out your second home

A popular option to help investors fund a second home is to rent the property out to help cover the overheads. First of all, you need to decide as to whether you want to rent your property on a long-term basis or as a vacation rental.


If you want to rent your home as a vacation rental then there are some essential considerations to be made. First and foremost is the location. Of course, ocean front homes will be in high demand and fetch high values but then chances are it was a high-value purchase in the first place. You need to ensure that there will be a steady demand for your vacation home in your chosen location and that it will bring in sufficient income to cover all of your outgoings. 


If you opt to rent your home out as a vacation home then you will also need to factor in the need for cleaning and change-over services. If you are not in the location or do not have the time or inclination to manage the changeovers, booking, and cleaning requirements then this is another service you will have to source and pay for. 


You will also need to consider the legal implications of renting your home out which can vary from state to state or even neighborhood to neighborhood as some areas or condominiums will prevent properties from being rented out or rented out via third parties such as Air BnB. You may also need permits and licenses and have additional taxes to pay as a result. Finally, do not forget when renting your property as a vacation home that the income is not guaranteed and when the property is not rented you will be liable to cover all of the associated costs of your property. 


If you are looking for something more permanent and less onerous than a vacation rental then you could let your property on a more permanent basis. The advantage of this is that your income is likely to be more steady and the ongoing requirements less onerous. Buying properties with the purpose of letting them out can be a savvy financial move. Of course, the downside to this is that you will not be able to access your second home as and when you want as it will be for all intents and purposes someone else’s home. 


If you are considering renting your home out whether as a vacation property or long-term let then it is always recommended that you use a reputable agent. A good agent can not only ensure that you get the right value for your property but will be responsible for ensuring its upkeep, maintenance, and that suitable (and reliable) tenants are found to rent your property.