When To Buy a Second Home | Adviser Investments

When To Buy a Second Home

When to buy a second home
It’s the heart of summer—time for a vacation! This is also a time when we hear from clients wondering if this is their year to buy a cottage on the beach or in the mountains.

When is the best time to buy a second home? With home prices hovering near historic highs in many areas and the price of seasonal rentals trending lower, this question is more complex than ever. We’re here to help.

Before you commit, consider how a second home fits into your long-term financial plan by asking yourself these questions.

Will I need a mortgage? Higher mortgage rates have pushed some buyers to the sidelines. Those same high rates make trading up more expensive for existing homeowners, keeping inventory low. And mortgage rates are steeper for second homes because lenders consider the default risk to be greater. Things may change later this year if inflation continues to ease and interest rates ultimately decline.

What’s my time horizon? If you intend to hold on to a property as a long-term investment or family legacy, its value may appreciate significantly, potentially making up for higher interest payments. And when interest rates eventually drop, you can refinance. Conversely, if you don’t see yourself keeping a house for at least three years, it may not appreciate enough to justify even the transaction costs of buying. Renting may make more sense.

Do I know the total costs? A home adds fixed expenses to your budget, including property taxes, insurance premiums, mortgage payments, maintenance and utilities. And it’s prudent to consider climate-related costs: If you are looking to buy near the water, you may need flood and hurricane insurance. Remember to keep all of these costs in mind.

Have I thought about taxes? You can claim tax deductions for mortgage interest, property taxes and rental expenses, but you’ll need to pay taxes on the income if you plan to rent your home for more than 14 days in any calendar year. We can help you think through your tax strategy.

Sticker shock aside, you may decide that a vacation house would dramatically elevate your quality of life. That alone is a decent reason to proceed if you find a property that fits your finances. If you’re on the fence about when to buy a second home, we’re here to help crunch the numbers and offer advice. Let us know!

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