For many, buying a second home is a major milestone. Not only have they established financial stability for themselves, but now have an opportunity to grow their investments. We all know that real estate investments, given the historical price trends, are generally solid financial decisions. All too often, however, people tend to make rash decisions without covering all the bases.
As the housing market regains traction, it opens the door to a lot of opportunity. With this opportunity, comes a considerable amount of caution, especially when buying a second home. Before jumping on Google and looking for your dream investment property, here are some questions to ask yourself to know you’re on the right track.
“Can I really afford buying a second home?”
Generally, this tends to be the first thing that comes to mind. It’s important to really take a step back here, and consider all the potential risks that could impact the decision in the long-run. Whether that’s job security, financial stability, current outstanding debt, or volatility of the housing market, make sure you think of all the things that could get in the way.
“What do I want to use it for?”
This is one of the first and most important things to ask yourself before buying a second home. Are you planning on using it as a rental property? Or will it be a vacation home for you and your family? Regardless of what the answer may be, having a plan is crucial.
Knowing all the rules and risks with your plan comes next. Are there any remodeling ordinances, special rental rules, or any other quirks that come with the area? Doing thorough research can ensure you don’t get yourself in a sticky situation.
“How much will everything cost me?”
Although costs and pricing are generally the first things we think about, many people fail to look at the bigger picture. Sure, the sale price is one very important component. However, there are an array of other costs to consider, such as total utilities, HOA fees, insurance, property tax, furnishing the property, just to name a few.
Understanding each and every cost will paint a bigger picture for you. Too often failed investments have occurred for lack of calculating the total costs, so make this a priority!
“When will I get my return on investment?”
Generally, if you’re buying a second home, you’re expecting to get a return on it. However, we often forget to consider the time and rate at which this return will come in.
This step is crucial in buying a second home, as you need to consider the amount your spending (including all costs), and have a plan of when the return on initial investment will be received. Without a set plan, your investment may become disorganized and it’ll take you longer to see the return.
“Am I prepared if any emergencies occur?”
When we say emergencies, we don’t only mean in terms of the broader housing market and its trends. In this case, emergencies mean issues that come up with the house itself.
These include leaky pipes causing water damage, unknown termite infestation, natural disasters, robberies, or other such occurrences. Having a plan, such as hiring a property manager or asking trustworthy friends to look after the place, can deter a major headache in the future.
“Am I sure I’m buying for the right reasons?”
Knowing the specific reasons you’re buying a second home for are imperative for a good decision. If the answer to this question includes saving costs on vacations, or anything of the sort, it should raise a major red flag.
If your reasons lean more towards using it as a means of investment, whether rental or vacation home, then it’s likely you’re on the right track.
“Am I rushing into this decision?”
This is, perhaps, the most important question to ask when buying a second home. Regardless of how stable your finances are, or how foolproof your plan is, make CERTAIN you’re not rushing into it.
Don’t worry about trying to rush in to get a good deal, or be concerned that you’re missing out on a potential opportunity. Take a step back, look at every little factor, and make a calm, collected, and calculated decision.