Decide if you’re financially ready for a second home?
Consider yourself an investor; you want your second home purchase to be a positive financial decision. Upon occasion, some investors realize that the purchase price and continuing expenses may end up being higher than what they anticipated. As a potential investor, you may want to calculate your expected costs by using the CAP RATE METHOD since additional expenses such as insurance and property management can be included in this method. If you plan on renting out the property, determine how much you can expect from rental income and always make sure you have a cash reserve for those unexpected extra emergency expenses.
Where and What Type of Investment are you looking for?
An investment property in a badly chosen location won’t serve anyone’s goals. An investor can’t re-sell or rent it, a vacationer won’t enjoy it, and a future retiree may have to pick up and move again. You’ll need to rely on both market research and your own personal preferences. Look into factors such as the strength of the local economy, trends in property resale values, convenience, amenities, property tax rates, the quality of local schools and medical care, and more. The type of property you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type will serve you best depends on personal preference and factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the common (outside) areas of the property are governed and maintained by an Association (of which you will be required to be a member). However, you’ll pay for that maintenance in the form of monthly fees and special assessments, if applicable.
Paying for a second home with cash or finance?
Most people get creative when purchasing a second investment property; they usually obtain a conversational loan or pay cash. The higher your down payment, the lower the loan will be on your mortgage. Your down payment should always be at least 20% of the purchase price. Some buyers use the equity of their primary home, borrow against a life insurance policy or use their 401k savings; others have a game plan and have been saving for this investment. If you’re planning to finance part of your purchase, consider maintaining your credit score at 720 or higher. If you wish to finance your purchase, shop around by reviewing the various mortgage options (a mortgage broker should provide you with a free estimate, have at ;least three to compare interest rates) so you are able to find a mortgage thats suits you.