If you’ve been keeping an eye on the real estate industry, you already know that interest rates are rising and house prices aren’t decreasing. You’d be forgiven for thinking that the market is cooling down, but it’s not. In fact, HomeLight’s Real Estate Top Agent Insights for Summer 2022 reveals that 95% of surveyed real estate agents say it’s still a strong seller’s market.
The survey also reveals that 64% of agents say many buyers are looking in remote areas to find a second home. Even if you aren’t able to work remotely, buying a house in a more affordable area while still renting could be a great purchasing strategy worth considering. Here are five questions to ask yourself to see if this is something you could do.
1. Can you afford the bills for two households?
A primary concern people have about buying a second home is if they can afford two sets of bills – one for the rental you currently live in and another for the second home. In essence, you’re doubling your monthly expenses, which is a lot to take on.
2. Can you save enough money for a down payment?
You have to cover the bills for two households, but you also need to figure out how you’ll save enough money for a 20% down payment and closing costs. Many renters will tap into a retirement account or get a part-time job to come up with the money, but some will also ask friends and family to borrow the cash.
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3. How long will you keep renting?
Rental properties are a hot commodity, and it’s not uncommon for the rent to be increased by hundreds of dollars in some areas. You may have even experienced the rent increases yourself! You need to figure out how long you want to keep renting so you can plan accordingly. Circumstances change, and it’s always a good idea to have a backup plan (or two) regarding your living arrangements.
4. What will you do to the second home when you’re away?
Do you know what you’ll do with the property when you aren’t staying in your second home? You could leave it vacant, but why would you do that when you could make the property a short-term rental, which generates passive income. If you do that, however, you have to read the terms of your mortgage agreement to find out whether you can even do that or not. Some lenders prohibit this, while many simply require that you live in the property for at least 12 months before turning it into a rental.
5. Can you keep a detailed record of all financial transactions?
If your mortgage agreement says you can rent the property out in short increments, you need to figure out how you’ll track your finances related to the rental. You could do the bookkeeping, but you could also hire a property management company if you’re not the best at keeping detailed records.
In many markets, the cost of buying a house is astronomical. But despite this, real estate agents estimate that buyers who buy a second home while renting the first could save $76,000 over the life of the mortgage. As great as that may sound, we recommend you consult an accountant to see if this is something you can afford.
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