Does It Make Sense to Buy a Second Home?
Buying a second home is a dream for many, but understand the pros and cons before taking on two mortgages.
You don't have to be a detective to figure out the advantages of having a second home. If you want a change of scenery, you have somewhere to go that's your own instead of staying at a hotel.(Getty Images)
Owning a second home may sound like something only possible for the wildly wealthy, but that isn't always the case. Sometimes people buy another house when they haven't had success selling the first. Other homeowners might like the idea of buying a second home to fix up and sell at a profit – or rent out.
For the right individual, two homes may be a great plan. But for the wrong homeowner, plenty can go awry. If you're thinking of getting a second mortgage for practical or profitable reasons, you want to think this through. There are a lot of considerations when it comes to investing in a second home.
Can I Afford Two Mortgages?
In other words, have you finished paying off your first home? What if you end up needing a second mortgage?
You'll need to think about that. It is expensive.
"It's achieving the American Dream twice. What a thrill ... until it isn't. A lot of buyers vastly underestimate the costs of homeownership," says Peter Gray, president of the Pyramid Real Estate Group in Stamford, Connecticut.
Aside from the mortgage, there are a lot of maintenance costs. You have to furnish the home. Unless your second home is nearby, you've got your travel costs. Adding insult to injury, Gray points out that the tax benefits that you get with a first home typically aren't available on a second home.
"People who are happy with their second home want it in spite of the financial burden," Gray says. "They want the joy of ownership. They want to feel at home at both locations. They want to be surrounded by their things, decorate as they please and have the ultimate in convenience and comfort. But it does come at a price."
The Pros and Cons of Investing in a Second Home
You don't have to be a detective to figure out the advantages of having a second home. If you want a change of scenery, you have somewhere to go that's your own instead of staying at a hotel. If you're planning to eventually move there – when you retire, for example – it's a way to connect with a community during your vacations.
The negatives are not always obvious, and you need to be aware of them before possibly blundering into an expensive misstep.
READ:What Is a Condo – and Should I Buy One? ]
The Less Obvious Cons of Investing in a Second Home
Taxes and insurance. Property taxes can be high, depending on where you buy a second home.
"Many second homes are in desirable locations such as large cities or near water which can have high property taxes," says Ryan Dosenberry, owner of LakeShoreHomeBuyer.com, which specializes in homes in western Michigan. "If you overlook this when purchasing a second home, you may find yourself in a situation where your annual property taxes cost more than your mortgage."
Homeowners insurance might also be higher than at the house you call home base. If the sump pump stops working in the basement, and you don't have a home security system or anyone regularly at your second home, an insurer knows that you aren't likely to discover that problem for a long, long time – which means an even more expensive payout.
Maintenance costs. You now have a second lawn to mow and plenty more upkeep to consider.
"Especially if you buy an older home, make sure you get a thorough inspection done to evaluate the condition of the roof, electrical, plumbing, foundation and HVAC systems," Dosenberry says.
It will be harder to take other vacations. For many people, buying a second home can put a stop to their globetrotting adventures, according to Nick Ron, CEO of HouseBuyersofAmerica.com, based in Chantilly, Virginia, which specializes in helping people sell their home without an agent.
"You don't want to be locked into one individual property if you like to travel," Ron says. He adds that "many times, people buy when the market is hot, then their lifestyle changes and they can't sell in a down market."
Should I Rent Out My Second Home?
This can be both a good and bad strategy for homeowners. Obviously, if you rent out your second home, that might provide a nice steady stream of relatively passive income.
On the other hand, renting out your home may not work out the way you hope, says Ashley Melton, a Realtor in Charleston, South Carolina.
"Owning a second home may come with some unexpected roadblocks," she says. "What we experienced with the pandemic is a good example."
She says there were plenty of owners of vacation rental homes in Charleston last year who suddenly found that they had a lot of empty vacation rental homes during seasons of lockdowns and beach closings.
"That was months without income from the property while still paying the mortgage, taxes, insurance, and in some cases, the maintenance or regime fees for condominium complexes. An owner who doesn't have a good amount of reserve cash could find themselves in financial ruin under these circumstances," Melton says.
None of this is to say that if your heart and wallet are set on a second home that you shouldn't do it – just know that it's a big monetary undertaking that no one should rush through. If you do buy a second home, you want to have no second thoughts.