What to Consider When Buying a Second Home
Published on 19 December 2022 in Blog by
Last updated on January 9th, 2023 at 09:47 pmWith the rapid appreciation of houses in the market over recent years, homeowners are looking for ways to gain investment opportunities with lucrative profits. If you’re considering buying a second home to live in, rent out, or use as a vacation getaway, here are some details to remember before you start to search through available listings.
The Purpose of a Second HomeIt’s essential to consider why you want another property to help you understand the costs involved. Here is a list of common reasons: Investment: To use as a rental unit, renovate and sell at a higher price, or hold and sell when the house increases in value. Vacation: Buying a vacation property is a great way to save money on airfare, accommodation, and travel expenses the next time you need a getaway close to home. You can also rent it out short-term to help with payments. Your Next Place to Live: Maybe you’re ready to move to a new house, whether you need more room for an expanding family or want to move to a better location.
Financial ConsiderationsPerhaps the most obvious is to prepare financially for buying another property. Can you afford a second home? It’s essential to first take into account your debts and savings goals. Ask yourself the following questions: Can I still save 15% of my income each year for retirement? Do I have three to six months in emergency funds? How much is my current debt load (credit cards, loans, etc.)? Is my existing mortgage paid off? Do I need to save for plans, like travel or college funds? Next, compare your debt and savings goals to the expenses of purchasing another house. Let’s break down some of these costs:
- Utility, maintenance, and repair costs: Depending on your purchase choice, you may need more money upfront to get the space in good condition and maintain it for the coming years.
- Mortgage, homeowners insurance, and property taxes: If you still have a mortgage on your current house, this might mean that you’ll have two payments on top of double the cost of insurance and taxes.
- Closing costs: Prepare for fees associated with inspections, appraisals, lawyers, title insurance, land transfer taxes, and HST and GST. These closing costs can add up to between 1.5 and 4% of the purchase price.
- Down payment: You’ll need to have this money ready when closing the deal.