Is a Second Home Right for You?
Things to know before you invest.
Making a Move
Exciting things happen when you or your family decides it’s either time to invest in a new home or acquire a second property. However, there are some things to take into consideration before jumping back into the market. Depending on how long it’s been since your last purchase, the market can be and most likely is very different than you remember it. There are a few items to consider to help you prepare and determine if you’re ready. Check out these helpful tips from our team, so you can make the best call before getting into your next property! Remember, closing on your second home will be the last step of the process, but our team is here to help you close efficiently, with no extra fees. Let’s jump in!
#1: Is The Grass Really Greener?
From flipping to investing in rental units, it is a good strategy to think about your end goal - the outcome you want to see from this purchase. Even if the initial cost of the property is an endeavor you are comfortable with, you need to think long-term.
Does the property you have your eye on need major renovations or updates in order to be livable? If you are flipping the property, will the cost of renovations outweigh the profit you hope to make? Will the rent you stand to make month-to-month offset the cost of repairs needed fast enough? Look at the numbers on paper to make sure you are selecting the best property.
Once you have the theoretical cost of improvements worked out to meet your budget (more on that later), you have to make sure the demand for the property is high enough. The more desirable the neighborhood for homebuyers or the needs of the community for rental units, the better it is for your bottom dollar. Picking a home that's easy to purchase and update won't serve your goals if you can't resell it or rent it out.
Thinking about all of this when looking at properties will ensure you purchase the property that will be best suited for your needs!
#2: Budget
Almost as important as being realistic of value and desirability, your budget needs to be broken down and considered before you enter the market. Flipping and investing in properties isn’t fast cash. You need to assure you are budgeted for the time in between the purchase to resale or renting out. Consider this time the property is in limbo and whether or not that affects your budget or the rewards you seek from your investment and make sure your budget is prepared for this time. When we say budget, we don’t just mean the price of your second home or investment, but everything that goes along with purchasing a new property. This can include:
Inspection costs
Deposit for the property
New appliances
Renovations & construction costs
Re-listing costs
Insurance rates
New furniture (for staging and renting purposes)
HOA fees (if applicable)
Tax changes (if applicable)
Incidental expenses throughout the process
There’s way more to budget for than just the price of your new home. Breaking down every line item and seeing if it fits into your budget is a critical step to take before you start to explore listings. Being firm on what you can afford can help you avoid falling in love with a property just to find out you cannot be approved for the price. Pre-approval with a lender if you need a loan or talking with a financial advisor if you have funds available is a great way to determine where you stand!
#3: Compatibility
Does your second home mesh with your business, group, or side hustle? Consider these items.
Local Opportunities: Does the surrounding area of your desired property provide career opportunities? Is there a bustling downtown area or entertainment options that make the property more desirable to renters or purchasers? These are important to ask yourself before jumping right in. You could end up with a property that doesn’t flip because of its location.
Urban vs Rural: This relates to the first bullet point. What are your resources and can you utilize what you have to effectively flip or market a home in an urban location? What about a rural location? Rural homes can be older and require far more updates while urban properties pose their own challenges like being connected to other homes or even the ability to easily access the property for repairs (large tools and construction equipment may be restricted due to urban environments, noise restrictions, and other ordinances).
What’s close by? This question can contain a lot: How far is the drive to get to a grocery store? A gym? A pharmacy? The doctor? Make sure to consider all aspects of potential renters or purchasers’ lifestyle and needs before making the decision to enter the market. If there is no entertainment close by, your list of potential buyers can shrink.
This topic is a really important one. Lifestyle is so different for every person and family—and can be a large contributor to whether or not your second property will flip or be rented quickly. Think of everything from medical needs to things people like and want to do as well.
A Few Extra Tips for Investors
To wrap things up, we want to give a nudge to those who landed here to learn more about acquiring a second home as an investment. All of these topics above still apply, but there are a few other things to look into, such as:
Median Rent Prices: See if this lines up with your expectations for your investment and whether or not you stand to profit.
Taxes and Ownership: Expanding your properties can quickly change how your taxes look. It’s always great to connect to an advisor before you start expanding.
Desirability: Is the property ready to be lived in and desirable? Would you live at the property? It’s great to consider this before purchasing so that you are not left with a new property and nobody to rent or lease it to.
Use An LLC: This is a strategy that can mean higher profit when done right. Partnering with an LLC allows multiple investors to pool their funds for greater expenses, which leads to greater profit. This is a great way to build more and buy more in your endeavors.
A Good Closing Partner: We mean our team of course! We support anyone with a smooth closing process and is an essential step to acquiring your investment property…plus we save your budget by cutting out all the extra fees!
Now Let’s Connect!
Using these tips to make a more informed decision is the right way to go. Make sure you think about and research what makes sense for your budget or yourself before you start paying for inspections and other fees that pop up when you engage a seller. When it’s time to close, you know our team at Universal Settlement Services has your back!