Buying a home is one of the most significant purchases people can make in their lives. With homes appreciating in value over time, buying a house is a solid investment.
It’s such a solid investment that owning multiple properties can actually help increase wealth over time. Building a real estate portfolio involves more than buying and sitting on property, waiting for it to appreciate. It takes cultivating to maximize the benefits.
Here are seven perks of owning more than one home, as well as some considerations to keep in mind.
Time is of the essence when it comes to real estate. As noted, property tends to appreciate over time, meaning a home, or even a parcel of land, bought today should increase in value 10 years, or more, from now.
When financing a home purchase with a mortgage, you can expect to pay mostly interest, rather than the principal amount, during the first few years. If you end up selling your home right away or sooner than planned, you might not get your money’s worth if the housing market holds steady or takes a dip. If you’re buying a second home for investment purposes, take care to buy one that you can own for several years to build equity.
Also, when it’s time to sell your home, sellers are typically responsible for paying closing costs and commission fees for the buying and selling agents. That will cut into your profits. Calculate how much you can expect to pay in commission fees.
You may be able to save money by working with a discount real estate agent. Instead of charging a standard commission, a flat-fee agent offers services for a set fee or a lower percentage rate.
A second home can earn you money down the road when it’s time to sell, but you can also earn it now by turning it into a rental property. You can use the income earned from rent to pay off your mortgage more quickly while also having someone in residence to protect your investment.
Depending on your level of interest and experience, you can manage the property as a rental or hire a management company to handle the day-to-day operations.
If you frequently travel to the same location for vacation, buying a second home on-site can be a smart long-term investment for multiple reasons. Not only will you have the convenience of owning your own home, you can earn equity instead of spending money on hotels or vacation homes.
As an added bonus, when you aren’t in residence, you can market the property as an Airbnb to other vacationers and short-term renters. You may even make enough money from vacation rentals to cover the expense of owning a second home and have extra cash to spare.
When buying a second home that will be used as a vacation property, look for homes with amenities that offer extra comfort and convenience for the location. For example, if you’re buying a home in a coastal community, take into account how long of a walk it is from the beach and restaurants.
A local real estate agent can help you make a wish list of needs and wants that will appeal to yourself and prospective renters.
Owning a second home can also be helpful as a way to support your family. If you have a large extended family that gets together frequently, a second home can provide a safe and comfortable place for them to stay without turning your primary residence upside down. Like with a vacation home, you can make it available for short-term renters when your family doesn’t need it.
Also, if you have children, grandchildren, nieces, or nephews who are nearing adulthood, you can rent your second home to them for an affordable price. This will help you cut down on expenses while also giving them a financial break as they enter adulthood. Just make sure to have them sign a lease to protect your interests, as well as theirs.
Buying a second home with a mortgage can be a smart investment. Mortgages charge a substantially lower interest rate than other private loans and significantly less than the interest you pay on credit cards.
You can particularly benefit from a second mortgage if you get approved at a fixed rate while interest rates are low. That means you’ll pay the same amount today as you would in 10 or 20 years, when housing prices and interest rates will likely increase.
Owning real estate comes with a number of tax advantages. Whether you’re living in your second home part time or not at all, you can deduct some of your home-owning expenses, such as interest paid on your mortgage, expenses paid to update the house, and management fees if you hire a rental company.
Tax law can be complicated, so be sure to talk with an accountant to make sure you’re taking advantage of all the write-offs and breaks that apply to you.
Whether you’re planning on staying where you live or moving to your vacation property, a second residence is a solid investment for your retirement. You can sell one — or both — of your properties and use the cash earned from the sale. It’s an investment just about guaranteed to increase in value over time, and it’s less risky than the stock market.
If you’re hoping to maximize your earnings by selling your home yourself — known as for sale by owner (FSBO) — it’s never too soon to learn how you can set yourself up for success.
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