Buying a home is another feeling that most of us want to fulfill in their life. Even there are a good number of people who already have a home also plan to buy a second home. This can be due to various reasons like - a vacation home, a place to live their children to live, or a home which is near to the school. There can be various reasons why you may plan to buy a second home.
If you have not decided the reason to buy a second home, then let me help you here-
Vacation home vs investment property
These two options are completely different and so should be planned well. For example, if you’re considering it as vacation property then you might look for location, appearance, and comfort. While if you’re looking for an investment property then you may look for the best rental income so that your investment gives you a great return.Now as you know the purpose of buying a second home, it’s time to think about the pros and cons of buying a second home.
Pros and cons of buying a second home
If you’ll search on Google about the opinion of buying a second home, you will find mixed opinions. Many will be talking in favor while others may differ the opinion. Let me talk both here about the pros and cons of buying a second home.Pros of buying a second home
There can be various reasons why you may be planning to buy a second home and it’s always a good idea to evaluate the options. Let’s look at some of the positive sides of buying a second home.Vacation spot
If you and your family love the mountains and are tied with the work in the big city then you may think about buying a vacation home. This also applies to the people who want to settle in mountains after retirement. It’s always a good idea to plan the retirement when you are young.Retirement place
This is the same thing that I discussed above. If you’re tired of the fast-moving life in the big city then buying a second home can also be a good option. Here you can think of buying a home somewhere you want to live to enjoy your retirement. The best thing about this option is, you can buy now when you’re earning and make it a kind of investment. When you plan to retire, you can start living there. This way it can solve your financial goal as well as retirement goal as well.Diversify your asset
Real estate is also one of the lucrative investment options as well. The home trend to increase in the valuation and so can be a good investment option. So, if you want to look for options apart from a mutual fund, SIP, gold, bank FD, then investing in the home can be a good option. You can later keep it or sell it as per your goal.Rental income
This is my favorite where you can buy another home for rental income. Although this is a little challenging as you need to keep track of it but is a good option. Even if you buy a vacation home then you can give it on short rent to the travelers or the agencies. One thing you should assess while buying a home for a rental is the location. Make sure the area where you’re buying it has the rental requirements. Maybe that can attract travelers, students, working professionals, etc.Tax benefits
Usually, the government offers tax benefits on the interest paid to the mortgage loan. And so if you’re in a high bucket tax slab then you can consider buying the home and eventually saving some bucks.Cons of buying a second home
As every coin has both sides and there is some negative side to buying an additional home as well.Additional responsibility
Additional home means additional responsibility as well. That means you need to work twice to manage the property as well. If the property is just for vacation then you may need to keep someone to take care of the property as well and that will be added financial burden.Risk of security and damage
As you won’t be on the second home all the time and so there will be a risk of security always. Also, to save it from any kind of damage you may need to keep secure all the time. For this, you may give to some small property management firm or keep a dedicated security/care-taker. But that will be an added financial responsibility.4 factors to consider while buying a second home
Here are some of the factors you must consider while buying the home-Affordability
This is an extremely important factor to consider while buying any home. You should plan your budget, the amount you have, and the mortgage you will be considering. The average home cost in the UK is GBP 231k, as per the government of the UK website. On average the house price has fallen by 1.1% since December 2019 and a rise of 1.3% annually.Below is the quick trend of how the price of a home has changed since January 2007 in the UK. This is a report by Statistica-
And this price heavily changes as per the location in the UK. So, let’s say you’re looking to buy a home of GBP 250k. And you have around 20% to make the down payment and for the rest of it, you will be looking at the mortgage.
Considering this value, the mortgage will be GBP 200k. Let’s use the mortgage calculator and see how much you need to pay monthly on GBP 200k.
You can have a look at my calculation here where I have used the calculator to see how much monthly I need to pay on a mortgage of GBP 200k.
And this price heavily changes as per the location in the UK. So, let’s say you’re looking to buy a home of GBP 250k. And you have around 20% to make the down payment and for the rest of it, you will be looking at the mortgage.
Considering this value, the mortgage will be GBP 200k. Let’s use the mortgage calculator and see how much you need to pay monthly on GBP 200k.
You can have a look at my calculation here where I have used the calculator to see how much monthly I need to pay on a mortgage of GBP 200k.
Occupancy rule
Depending on the location you’re buying your second home, there may be some rules around the occupancy. For example, on the general thumb of rule, you can rent the property for around 14 days in a month easily. If you’re looking to rent for more, then you need to show this to the IRS book.Location
Another important factor to consider is the location. The location matters depending on the purpose of the home. For example, if you’re going for a vacation property then you may need more primary space near the mountains to enjoy the reason for the vacation. Similarly, if this is your investment property, you may need near to market along with tourist place to attract maximum rental and more.While finalizing the location, have a detailed study about it and see if all the necessary stuff like hospitals, shops, markets are nearby or not.
Maintenance
Before buying the home, have a plan on how you’re going to maintain it. Whether you’re going to have a caretaker of the property or giving to some real-estate facility organization to maintain it. Also, have some P&L calculations around it.Bottom line
This was all about buying a second home where we talked about the pros and cons of buying a second home. Also, we talked about the four most important factors to consider while buying a second home.What are your thoughts on this?
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