If you’re considering buying a second home, you aren’t alone. According to the National Association of Realtors’ (NAR) 2016 Investment and Vacation Home Buyers Survey, around 920,000 vacation homes and around 1.09 million investment properties were purchased in 2015.
Although the sales of vacation homes dropped in 2015 (compared to 2014), the number of sales is still the second highest it’s been since 2006 (before the housing crisis began). Meanwhile, sales of investment properties rose 7 percent between 2014 and 2015. What’s the appeal? The NAR survey suggested that people are buying investment properties because prices (and interest rates) are still low. This is because they want to create an income stream and to take advantage of appreciation on the house. More than 80 percent of the buyers surveyed by NAR believe that now is a great time to buy real estate (and second homes).
Creates a Stream of Income
One of the biggest perks of buying a second property is that you can rent it out and create an additional income stream. Even if you purchase a home to serve as a vacation home, you have the option of renting it out when you’re not using it. The NAR survey found that renting an investment property is fairly common, with 42 percent of buyers trying to do so in 2015. With the rise in popularity of rental sites such as AirBnB, owners are becoming more interested in renting their second homes for shorter (less than 30 days) terms, as well as for more traditional lease lengths.
Provides Tax Benefits
You might also be able to take advantage of some tax benefits when you purchase a second property. The property tax on the home is always tax deductible, even if you rent it out. You can also deduct the mortgage interest you pay, as long as you primarily use the home as a residence and don’t rent it out more than 10 percent of the time. If you use it as a rental property, you may be able to deduct certain rental expenses.
What You Need for a Second Home
Often, lenders look at purchasing a second home as riskier than purchasing a first home. There’s double the benefits, sure, but also potentially double the risk. CNBC recommends having a considerable amount of money saved, usually about six months’ worth of living expenses, as well as a large down payment (at least 20 percent) before you buy another home. The amount you have remaining on your first mortgage can also affect your ability to qualify for a second loan. Your debt to income ratio needs to be lower than 42 percent.
If you want to increase your income options with a second property, contact a professional today to learn more about getting prequalified for a mortgage. They’ll be happy to explain your mortgage options to you and help you see if buying another home is the right option for you.