Buying a Second Home as an Investment Property

Buying a second home as investment property can provide you with many benefits. However, before doing so, you need to consider many different factors. Here are a few things to think about when buying a second home as an investment property.

Time Considerations

When purchasing a second home, you will need to determine how long you plan on holding the property. This will help you in evaluating several different financial decisions. If you know how long you will be holding the property, you can get some idea of how much money you need to invest. For example, if you are going to be keeping the property for 30 years, you know that you will have to do some major repairs to the house at some point. Most likely, you will have to replace the roof and do other major renovations. Therefore, you need to make sure that you factor this in to your investment calculations before getting started. By comparison, if you plan on keeping the property for only four or five years, you will want to avoid putting much money into it.

Purchase Price

Most savvy real estate investors know that the money is made on the front end of a transaction. You will not be able to purchase an expensive investment property and then make a substantial amount on appreciation. You need to focus on finding a great deal so that you can make more money when you sell. If you try to buy a property at a regular or expensive price and then put money into improvements, most of the time, you will not be able to make as much profit when you sell.

Evaluate Your Finances

Before purchasing a second home, you will need to take a good look at your personal finances. If you do not have enough cash to purchase the home outright, you will have to be able to secure a loan for the property. If you do not have your finances in order, you will not be able to obtain a good loan for the property. You should try to pay down as much debt as possible before applying for the loan. Make sure that you have some money saved up for a down payment and for cash reserves. When you are buying a second home, lenders will often want you to have enough cash to cover both of your mortgages for six months. This might require you to start saving well in advance of a purchase.

Cash Flow

When purchasing an investment property, one of the important factors is how much cash flow you can generate with it. You need to be able to pay most of the mortgage with money that is generated from the property. Ideally, you would like to be able to generate enough cash flow to cover the mortgage, taxes, insurance and maintenance expenses on the property. Therefore, you need to do some research to determine what the market rent is in your area.

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