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Thinking of buying that second home?
You’re not alone. That’s something
that many Americans dream of doing!
It’s really not much different from
buying your primary home. By not renting it out
regularly, you will be able to get a comparable
mortgage rate as your primary residence. You might
even be able to deduct the mortgage interest from
your income taxes.
You have an advantage in looking for
that special second home. You don’t have to be as
rushed. Take your time; weigh your options; make the
wisest choice. Consider how often you’ll be visiting
the area and how long you’ll plan on staying. Ask
yourself if it is worth the money that you’ll be
spending. Have a reputable real estate agent fill
you in on, not just the property, but the whole
area. Where is the local hang-out and where is the
new shopping center going in? Find out all the
details from appreciation, taxes, repairs,
maintenance, availability and cost of insurance, all
the way to garbage collection. What is the total
annual cost?
Home values aren’t much affected by
the seasons. The best time for you to buy a house is
when you are in the market to buy one. But speaking
of the seasons, it would be a good idea to see what
your prospective home looks like throughout the
year. Ask for photos taken throughout the year just
so see how far that jasmine of your neighbors will
hang into your yard.
Even though your second home won’t be
used primarily as a rental property, it’ll still be
an investment.
Show Me The Money
Once you have accumulated all the
facts and thought it over for a while, let’s say you
have decided that, yes, you want to buy that condo
on the beach. You find Florida irresistible.
If you don't have the cash to pay for
it outright, the next step is to find a mortgage.
Different lenders may have different standards when
it comes to mortgages on vacation homes. Loan
standards for primary and secondary homes are close,
especially for conventional loans. Rates are about
the same, unless the lender considers the house an
investment property. In that case, expect to pay an
interest rate about 1.5 to 2 percentage points
higher.
Another advantage you have in buying
that vacation home is using your current primary
home’s equity as a down payment. You can either do a
"cash-out" refinance, or get a home equity loan, or
an equity line of credit. You can use that equity to
make all or some of the down payment on the second
home.
Talking Taxes
Because of the constant changes, it
would probably be to your advantage to consult and
accountant. Usually, the interest is deductible from
federal income taxes, but if you borrow from the
equity on your first home to make a down payment on
the second home, you can write off the interest on
only the first $100,000 of equity debt. If you rent
out the second home, you have to spend a certain
amount of time in the home every year to be able to
deduct the interest.
Ocean spray, crashing waves, palm
trees, and the land of sunshine……
Where are you in this picture? In a
rented beach home or a vacation home of your own?
Where would you rather be?........
You don’t have to be one of richest
corporate executives to own your own second home.
You just have to use some careful planning to make
it happen. Instead of paying rent to someone else,
let the profits come back to you. Just rent out the
property enough to cover the property’s annual
expenses and the rest of the time is yours. Renting
it out is simply a way to make it affordable.
It’s possible for regular people to
buy and rent out vacation homes in places they love.
The Price Tag
The first step is to determine if you
can afford it. If your weekly peak rate rental fee
equals your monthly house payment, you might be
looking at a workable prospect. If you feel you can
guarantee renting your property for about a dozen
peak rentals a year, the mortgage will be covered.
If there are more rental weeks, the other property
demands can also be paid. If it was used as a rental
in the past, a real estate agent would be able to
tell you how often the home was rented and at what
price.
Once you’ve decided to rent, here are
some tips to follow:
Do It Yourself
Renting the property directly instead
of paying a property-management company can save you
about half of the rental profits. This is really
easier than you might think. Using the Internet as a
listing source is a place to start. Services such as
CyberRentals.com , which lists over 10,000 vacation
properties, charges a minimal fee for a three-month
listing, much less than you would pay a
property-management company. Listings include a
description of the vacation home and a variety of
inviting photos. You can choose to be contacted by
phone or e-mail. When contacted by phone, you have a
better chance to screen your renters. Some renters
who come back from year to year may almost seem like
family.
To avoid any uncertainty, it’s best
to be upfront with potential renters. Lay your
requirements out on the table. Half of the total
rental fee when the reservation is made, with the
remainder due two to three weeks before arrival is a
good place to start. Security deposits are a must
and all other requirements should be detailed in a
rental agreement.
You’re Grounded Until Your Room Is
Clean
You can make the renters responsible
for cleaning the house and bringing their own
bedding or hire a cleaning service that will take
care of that chore and also be available to perform
a variety of necessary tasks.
Take Good Care of Your Home, It
Belongs to You
Take good care if your investment. If
you can’t be there, try to find a local handyman to
check the property.
To Tax, Or Not to Tax, That Is The
Question
If you don’t feel confident with all
the required taxes, let someone who does handle it
for you. It may be the best decision you make.
Felines and Canines and Children, Oh
My!
It’s your decision. You may lose
potential renters if you restrict them, but you’ll
need to weigh your options first. Families with
children are usually in early and can be some of the
best renters. Pets are another consideration, since
the renters that follow them may have serious
allergies. You might want to consider charging an
extra fee if you do accept pets to cover additional
carpet cleaning or replacement. Whatever you decide
should be noted in your rental listing.
RSVP ASAP
Return phone calls and e-mails as
soon as you can. Time is money, in other words, it
can cost you money if you don’t get in touch with
them in time. There are other rentals for them to
choose.
My Key, Please
You could simply mail keys to each
renter or maintain a lockbox at each home. Renters
receive the code once the balance is paid in full.
It’s For You
If phones are provided at the home,
the phone company should be notified to block long
distance calls. Better yet, renters may need to use
their cell phones or use long-distance calling
cards.
To Dream the Impossible Dream of
owning your own vacation home is not so impossible
after all.
If you
rent out the second home, you have to spend a
certain amount of time in the home every year to be
able to deduct the interest. Your best bet is to
read
IRS Publication 936,
Home Mortgage Interest Deduction and
Publication 527,
Residential Rental Property. Once those
have confused you, consult an accountant.
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