How To Choose Where To Buy Your Second Home
Rachel Burris12-Minute Read
August 07, 2020
Do you often find yourself browsing real estate listings on the internet? Do you make a habit of looking at property prices every time you’re on vacation? No matter how much you love your primary residence, it can be tempting to consider what life would be like elsewhere.
You may dream of buying a second home to escape the chaos of your day-to-day life or just to gain a passive income. Whatever your motivations are for wanting to purchase another property, it can be stressful to start the process of looking for one. Choosing where to buy your second home is no easy task, and there are no simple answers for what the best location might be. The ideal second home could be a beach house in Key West, a log cabin in Lake Tahoe, an apartment in New York City or just a dwelling down the street.
While we can’t tell you where to take up your new residence, we can walk you through the process of finding your next home. By reading this article, you’ll learn the kinds of questions you must ask yourself to ensure your second home is a wise investment.
Where To Buy Your Second Home
Choosing where to buy your second home is a highly personal decision. No one can tell you exactly where to buy because it depends on your desires and goals. City dwellers often look for houses on large lots that provide a break from their cramped environments, while suburbanites tend to prefer apartments in urban areas that boast many cultural offerings. Those living in cold weather climates commonly seek beach or lake houses, while people accustomed to warmer weather pursue ski chalets.
Although there is no one-size-fits-all answer, there are questions that you can ask yourself to help with the decision. By asking yourself the right questions, you’ll find it far easier to pinpoint the ideal location for your second home. So, you must do some soul searching.
What Are Your Goals?
Your goals will depend on your stage of life, income, current location and interests. To help you begin the process, Alison Bernstein, president of Suburban Jungle, a real estate advisory firm that’s dedicated to helping urban families move to the right suburb, says: “The first step in beginning your search for a second home is understanding why you want a second home. What problem does it solve for you?
“For example, are you sick of squeezing into tiny hotel rooms with your whole family? Is it that the dates you typically travel are always booked, or the rates are surging?” Bernstein adds. “Or do you find that you are often spending an extended amount of time in one place, and it could make sense to have a place of your own in that location?”
Determining what problem you wish to solve by buying additional property will help you narrow your search. Typically, people buy second homes to satisfy one of three motives:
- Vacation getaways: They want a larger, more affordable accommodation to enjoy in their favorite destination during vacations.
- Weekend homes: They want a convenient place they can easily escape to on weekends.
- Investment properties: They want to own a home that they can rent out in order to gain a passive income.
Your motivation for buying a second home likely falls into one of these categories, so which speaks to your needs? Once you figure out which type of second home is most fitting for you, you can start to narrow down locations.
When people purchase vacation getaways, they look for places that are far away from their primary residence. The best vacation homes are in environments that feel and look very different from your everyday surroundings. The ideal locations are the ones that make you feel either most alive or most relaxed.
If you think you may be in the market for a vacation getaway, think about the following questions:
- What types of holidays do you most enjoy?: Do you prefer exploring cities, lounging on the beach, hiking through the mountains or skiing down the slopes? Are you looking for a warmer or colder climate?
- Where do you find yourself returning year after year?: Is there a place that you often travel to? Or a place that you immediately think of when remembering your most enjoyable vacations?
- How much time do you wish to spend there each year?: The closer the property is to your primary residence, the more you’ll be able to use it. Yet, the farther away the home, the more it will feel like a vacation.
- How will you be traveling to and from the vacation home?: How easy will it be to get there? Can you travel by car? If not, how much can you afford to spend on air travel?
- Who will maintain the property when you’re not around?: Is there a local property management service you trust and can afford? Do you have friends or family in the area that can check up on the home regularly?
Buying a vacation home comes with more risks than the other types of second homes because of the distance, which is why you need to make sure that you’re keeping your impulses in check. Just because you went on one great vacation, doesn’t mean you should buy property in that location. You need to ensure that someone will be able to keep an eye on the property throughout the year and that you’ll be able to use the home enough to make the investment worthwhile.
For this reason, the ultimate question you need to ask yourself is, “Will I be spending far more on the home than I would be a hotel?” Of course, you will be initially, but put down payments and closing costs aside. Figure out how much time you’ll reasonably be able to spend in the home each year and price out the cost of staying in a hotel during that time. Subtract those hotel fees from the amount you’ll spend on your mortgage each year.
If you’ll be spending much more on a mortgage than you would hotel rooms, a vacation home may not be a wise investment. While you may be able to rent out the home while you’re not using it, you shouldn’t depend on that income, as renting out vacation homes is rarely as simple as you expect.
If a vacation getaway is out of your price range or not convenient enough to warrant the purchase of a second property, a weekend home may be just the thing for you. Weekend homes are for individuals who want an escape from their everyday lives but don’t want to travel too far for it. The best locations for weekend getaways are ones that afford residents the ability to decompress, engage in new pursuits and enjoy different scenery.
When deciding to buy a weekend home, consider the following questions:
- What areas are near your primary residence?: Are there places near your primary residence that you’d like to spend more time in? Where do people in your area tend to go on the weekends?
- How close should you be to your primary residence?: How far are you willing to travel to get to your second home? Will this distance become a burden in the future?
- How often will you use your weekend home?: Do you plan to spend every weekend there? Is this home just for weekends in the summer or winter?
- What will your weekend home provide that your primary residence does not?: What are the draws of this new area? Does the home enable you to do activities that you wouldn’t have access to near your primary residence? If so, can you afford to buy a home in a location that will make these activities more convenient?
You should only buy a weekend home if you’ll actually use it. So, consider how you currently spend your weekends. If you commonly find yourself sitting around with nothing to do, a weekend home may allow you to take advantage of what another area can offer. However, if you’re constantly busy on the weekends, it may not be such a hot idea. Weekend homes are only advantageous for those who stay in them regularly. If you envision using the home every now and then, renting may be more appropriate.
There are those who choose to buy a second home because they want to invest their money in real estate. Purchasing an additional property can enable you to rent it out and gain a passive income. The best investment properties tend to be highly populated areas with strong growth potential. However, they are also close enough to your primary residence to make them easy to maintain between renters.
If you want to purchase a rental property, here are the questions you must answer:
- How much do you know about real estate?: Buying an investment property is a business decision. You need to make sure that you know enough about the real estate industry to be a good landlord.
- Will you manage and advertise the property yourself?: If you plan to do this work yourself, your revenue will be higher. However, you must make sure the property is close enough to your primary residence for you to be able to check on it regularly. Furthermore, you must ensure that your schedule is open enough to provide you with enough time to do so.
- Will you hire someone else to manage and advertise the property?: If you plan to use a property manager and real estate agent, the costs will eat into your revenue stream. You must determine whether the costs will be more than the rental income. Do you know whose services you would enlist? You must figure it out ahead of time.
- What areas near you have a strong rental market?: Buying an investment property is only profitable if you do so in an area that has an active rental market. Find out the vacancy and turnover rates in the area. The best areas will have fewer rental properties available and attract long-term renters.
- Are property values in the area appreciating?: How have home values in the area changed over the last decade? Have property values been increasing steadily? With investment properties, it’s even more important that you buy at the bottom of the market.
The idea of getting your money to work for you is highly alluring, but you need to be savvy. Without a clear understanding of the market and operations side of real estate, you can end up losing far more money than you gain. However, if you decide you’re prepared for such an undertaking, you’ll find that you can create a substantial nest egg for retirement.
How Do You Find The Right Property?
After figuring out the type of second home you’re in the market for and narrowing down the general vicinity you want it to be in, it’s time to start investigating the area. You want to make sure the neighborhood is safe, convenient, well-maintained and likely to appreciate in value over time.
Research The Area
These days, a quick Google search can tell you a lot about a neighborhood. Look up current property values and how they have changed over time. Find out how many homes are on the market and for how long. You want to make sure that the resale value of your second home will be high, so compare any property you’re interested in with similar homes that have recently sold. Researching the local school system is also useful, as homes located near strong public schools tend to hold their value. Be sure to also check the area’s property taxes and crime rates.
Spend Time Visiting The Area
Just as it’s a mistake to buy a home sight unseen, purchasing real estate in an area that you haven’t spent much time in is a bad idea. Before you decide to purchase property, you should test out the area. Consider renting a home near where you’d like to buy, so you can see what it would be like to live there. Spending a couple of weeks in the location will give you a much better understanding of the location’s strengths and flaws.
Interview The Locals
No one knows an area better than a current resident. So, it’s always useful to speak to the locals. Ask them what they like about the neighborhood and inquire about any problems they face living there. Beyond providing you with information about the ins and outs of the location, meeting the locals will help you determine if they’re the kinds of people you want to live near.
Enlist The Help Of A Real Estate Agent
After you’ve done your own research, you should enlist the help of a real estate agent. The pros will know more about the local market than you can determine on your own and can eliminate the stress involved in the home buying process. Hiring a real estate agent will help you find the right property and negotiate the right price. Furthermore, an experienced agent can teach you about the tax implications of buying a second home and let you know whether there are any limitations regarding renting out the property.
The agent you work with should be local and have experience buying homes that are similar to the ones you’re interested in. If you need help finding a good agent, you should check out Rocket Homes Real Estate, LLC. With its network of highly rated partner agents across the nation, Rocket HomesSM works with buyers to help them find a real estate agent who best meets their needs.
Is Now The Time To Buy A Second Home?
Buying property is never a decision to be taken lightly. As you know from purchasing your first home, investing in real estate is a significant financial undertaking. Before you even start to think about where your second home should be, you must determine whether you can actually afford to take on another property.
“Buyers should only consider buying a second home if they can truly afford the carrying costs of both homes, without expectation for tax breaks or rental income on either property, says Chris Oliver, spokesperson, editor and partner at Hauseit®, a real estate company that provides discounted services for buyers and sellers.
Thus, before you start the process of looking for a second home, you must assess your finances. To do so, consider your monthly housing expenses as well as your savings.
Monthly Housing Expenses
When purchasing a home, there is a common rule of thumb used to determine how much house you can afford. It stipulates that you should not spend more than 28% of your gross monthly budget on housing expenses. Your housing expenses include each facet of your mortgage payments: principal, interest, property taxes, homeowners insurance and association dues (if your home is part of an HOA).
To figure out the maximum amount you should spend, you merely multiple your monthly pretax income by 28 and divide it by 100. Therefore, if you make $90,000 a year, the maximum you should spend on mortgage payments each month is no more than $2,100. But how does this rule of thumb change when it comes to purchasing an additional property?
“We recommend only buying a second home if your combined monthly housing expenses (i.e., mortgage principal and interest, home insurance, property taxes, HOA fees, condo common charges or co-op maintenance fees) will be less than 35% of your gross monthly income,” says Oliver.
Returning to our previous example, if your annual salary is $90,000, your monthly housing expenses for both your primary residence and second home should be less than $2,625. Depending on the location of your ideal second home, it may be challenging for you to find another home that will not force you over this budget. That is why it’s often advised that homeowners pay off their first mortgage before taking on a second to purchase another property.
However, there are many reasons why a person may not want to wait. In such cases, you should think about your current level of savings. “A good indicator that you can afford a second home is having enough money to put at least a 20% down payment on the home,” says Brad Pauly, a licensed real estate broker and owner of Pauly Presley Realty in Austin, Texas. “It will eliminate mortgage insurance, you’ll get better interest rates, and it shows you have the financing responsibility of owning a second home.”
If you have enough savings to put down 20% of the purchasing price of your second home, you will not only save money in the long run, you’ll also likely be able to afford to take on the financial responsibilities of a second home. However, your down payment must not wipe out your savings entirely. Remember, you must always have some cash available in case of emergencies, and you’ll more than likely need spare funds to keep up your new home.
While the hope is that your second home will be in perfect condition, there’s always the potential that problems can arise. When homes sit vacant for a large portion of the year, issues tend to occur more frequently. So, beyond having enough money to pay for a down payment and make monthly mortgage payments, you must make sure you can afford to also pay for the upkeep of a second home. It’s recommended that you always have 2% of the second home’s value put aside for maintenance and repairs.
Next Steps For Buying A Second Home
Buying a second home is an exciting new venture. However, it’s crucial that you remain levelheaded throughout the process. Impulse purchases usually make for excruciating headaches. So, instead of jumping into anything, take the time to determine your goals, research your desired location and weigh your finances.
The more prepared you are, the easier your home buying experience will be. If it’s been a while since you purchased your first home, you may have some inaccurate assumptions about the process. In that case, you should read up on how the real estate game has changed over recent years.
However, if you have a clear picture of what you’re getting into, you can learn more about your financial options by creating an online account with Rocket Mortgage®. If you’d prefer to speak to someone over the phone, you can call (855) 480-8624, and a Home Loan Expert will walk you through the process.
Table of Contents
Buying A Second House Or Vacation Home
Let’s dive into the pros and cons and what you need to know to successfully buy a second home.