Perhaps you’ve decided to purchase a second home to flip and make a profit, or you’re yearning to have a weekend getaway or vacation property your family can enjoy. Regardless of your ‘why,’ purchasing a second home is a huge investment and one that should not be taken lightly.
Here are 5 questions you need to ask yourself before opening the MLS and looking at homes for sale.
Do I have the money on hand to purchase this home?
When you purchase a second home, especially if it’s an investment property, you should not need to take out a loan to purchase it. A loan is a high-risk factor and many banks and lenders will only lend you the cash if you live in the home.
Is it realistic to have a budget for upkeep and maintenance on this second property?
If you’re already tight on your monthly budget, you need to think hard about what you’ll be able to afford verse not afford by adding a second set of maintenance and upkeep expenses to your monthly budget.
The upkeep on a second home may not be the same as your current property so you’ll want to discuss this with the current homeowners or realtor.
Will I ever live in this home?
This question is a must to ask yourself for many reasons. The most notable being, if you plan to ever live in this home in the future, you’ll want to factor in the size and space of the home. If it’s going to become your retirement home, you won’t need a large amount of square footage or bedrooms as it’s likely you won’t use them.
Another reason to ask this question is because of loan options. If you do plan to purchase this home as a second mortgage, banks and lenders will likely only give you a second loan if you can show that you are going to live in the home.
Will I rent the home out when it’s not being used?
If you plan to use the property as a vacation rental for others so you can make passive income, you’ll need to factor in the added expenses that come with doing so.
Those expenses often include HOA fees, insurance, maintenance, utilities, property management, and any other monthly expenses that accumulate should you not have renters that month.
Remember, rental income is not guaranteed so you’ll need to cover the expenses should you not have a tenant for a month or two.
Should I use this property as a flip and resell?
This question is also a must. If you plan to use this property as a flip and resell, you’ll need to have the cash to complete the project upfront. Then, research the comps in the area so you don’t invest more money into the property than you’ll make.
Sometimes, you only make a whopping 10,000 on a flip – other times, you may make 50-100,000. It’s really dependent on the location and what changes are made.
