So far in 2021, there are still less homes for sale than before Covid hit us in early 2020. But there’s an interesting trend in the homes that are being bought. More homes are being sold as secondary homes than in previous years. The National Association of Home Builders reported that 15% of all new home sales in 2020 were for second homes – that’s up from 5.5% from 2018. With housing inventory being so low, this trend is especially significant. Whether they’re buying a vacation home or investing in real estate, why might so many more homes be for secondary purposes?
Take advantage of low interest rates
Even though home prices are high, interest rates are staying low. A buyer will likely overpay for your second home, but since rates are so low, you might still be in a better place financially than if you paid less but interest rates were higher. Some buyers who have had an eye on buying a secondary home may be jumping at the chance to get one with a low interest rate.
Income potential
If your second home is located in an area people like to vacation, you may be in an especially good position to use it for short term rental like an Airbnb. The income from the rental may help offset the cost of HOA dues, mortgage payments, and taxes. Pay attention to how much income potential you have and compare it to the time you’ll spend cleaning the property, advertising, responding to reviews, communicating with guests, filing insurance claims for damage, and booking rentals. The average is 5 hours booking per each rental.
Alternatively, you can do long term rental for your second home. It will take less time to manage but you’ll still have to handle payments, repairs, maintenance, and communicating with your renter. You won’t have the flexibility to use the home as your own vacation spot, but you may make more income overall.
Getaway
How many times have you been somewhere beautiful and dreamed of owning a little piece of that heaven? Owning a true vacation house is something a lot of people aspire to have. You just pack the car and head out for the weekend. If you maintain your home and property, you may be able to sell it for a profit some years in the future. You can even rent it out up to 14 days a year before it’s classified as an income property by the IRS.
Future retirement home
Take advantage of the low interest rates and purchase your retirement home today. You can rent it out and put the income towards the mortgage payments and home upkeep. When you’re ready to retire, you can simply move in a continue to make your mortgage payments until it’s completely yours.
Long term profits
Over time, the value of real estate typically increases. It’s possible to purchase a home now at low interest rates and reap the rewards over time when the home value increases. In order to be successful, you’ll need to know what your total investment in the home will be (factoring in principal, interest, maintenance, taxes, HOA dues, and more) as well as the potential for the home’s value to increase (in that past year, they’ve averaged an increase price of 9.2%).
Whatever your plans for a second home are, be sure to contact your local home lender. They’ll go over your loan options, an estimate of costs, and an estimate of your payments. With their information, you’ll be able to decide whether a second home is right for you.