Tips when buying a second home

Brush up on location, lifestyle and finances while searching for your retreat.

Buying a second home has become one of the fastest growing trends in the United States. In fact, more than 30 million Americans are expected to enter the second home market within the next decade. It can seem like a daunting task, but with a few essential steps you can learn how to turn buying your second home into a sane, reasonable venture.

Assess Your Lifestyle

• Think about what spot you love the most and the amount of time you will be spending in your vacation home.
• If this house will be for weekend getaways, anything more than two hours may seem like a long trip.
• Condos have relatively low maintenance, making them a good option for those using their homes one season a year, or for those who want a place farther away from their primary home.
• When considering a condo, find out whether you can live with the homeowners association rules.
• With a single-family home, you will have more privacy but you'll have to handle all the maintenance.
• Many hotels are now providing rooms as condominium hotel rooms. These offer all the services of a hotel, but yet you're still able to benefit from the appreciation of that property over time.

Choose a Location

• The best way to spot the up-and-coming neighborhoods is to drive around the area that you like, and go farther out; the homes in these areas will likely see their value increase as well.
• Find out from local people how the town has changed, what's being built and what types of people are moving to the area.
• Pick up the local paper to obtain information about political issues, tax issues and more.
• Visit your vacation spot during each season to get a good idea of what it's like year-round.
• If you might retire in your second home one day, make sure that there is quality, accessible health care nearby and that the environment is both safe and affordable.
• Find out if there are enough places to pick up part-time work if you want or need to.
• It's always important to check out the weather, especially if you plan to use for all seasons.
• Think beyond the price tag of the home:

   

   

   

   

  1. Check out the area public schools.
  2. Consider neighborhoods just off the beaten path.
  3. Rent two or more years in a row to get the true flavor of a place.
  4. Do a test drive to the location at peak times, look for alternate routes.

And, finally, ask yourself the following:

• Do I love one spot?
• Do I have enough time?
• Is it close enough?
• What can I afford?

Assess your lifestyle before buying a second home.

Shop and EvaluateTake your time and have some fun finding the right vacation home for you, and be sure to view at least 10 to 15 properties before making your decision. You can check out some virtual home tours on the Internet to help you get an idea of what's out there.

• Your most valuable resource is a good realtor.
• Pick up the local paper. The most successful agents are always advertising and promoting their listings. Go to some open houses on your own and choose the best agent.
• The right agent should be punctual and return your phone calls promptly.
• There will be more than one or two house options in a given area so experts insist: Cast a wide net.
• Make sure you look at a wide variety of houses, both above and below what you can afford, to truly compare the price that you're paying and the value you're getting for that price.
• Once you start narrowing down your choices, seriously check out the potential neighborhoods. Talk to the current residents to make sure you get the insider's view.
• Keep in mind, a vacation property is likely to have more blemishes than your first home. Homes that are built as vacation homes often aren't built as well as year-round homes.
• Many vacation homes are built over crawlspaces which have wood and soil in close contact. This can result in decay.
• Porches are often built without adequate foundations and may need to be resupported over time.
• Trees around the home can damage it. They drop leaves and nutrients on the roof, causing decay. Houses surrounded by trees aren't able to dry out as quickly.
• Water is a problem with all homes but is more of an issue with vacation homes, because we are not there to notice if a water problem has occurred. Also, the home is susceptible to mold.
• Keep thermostat on year round to avoid frozen pipes.
• Hire someone to look in on your property while you're not using it.
• Make sure your home inspector is registered with the American Society of Home Inspectors.
• Use mold-resistant materials in all remodeling and avoid manufactured wood products or materials that incorporate wood products, such as wafer board, particleboard and sheet rock.

Get Your Bucks in a Row

• If you have reasonably low debt, and money left over at the end of the month, you can probably afford a second home.
• Lenders want to make sure that your debt does not exceed 40 percent of your gross income.
• You'll get the most competitive mortgage rate on your first home, not your second. Your mortgage rate could be up one-quarter or even half a point.
• The climate right now is great for getting a good rate, because of competition between lenders. Make them work for you!
• For second homeowners insurance, be prepared to shell out a little more than you do on your primary home. A lot of insurers realize that if it's a vacation home you are not around all the time.
• Stay with your current home insurer and you may get a solid discount.
• A central alarm system that detects burglars and fires can cut 20 percent off your rate. Buying a home in a gated community could save you 10 percent.
• A second home can actually help you out with regard to your taxes if you live in your vacation home more than 14 days per year, you can deduct your real estate taxes and mortgage interest, as long as your combined mortgages don't exceed a million dollars.

Rent It

• For many second homeowners, an occasional renter can help offset a lot of expenses.
• If your house is rented out for fewer than 14 days a year, you don't have to report that income to the IRS. If you rent out for more than 14 days, you have to report the income to the IRS, but you can deduct some expenses too.
• If you're going to be renting, make sure you have a very good accountant.
• Don't expect the rental income to cover your monthly mortgage.
• Make sure you screen your tenants very closely. Use a good property management company that will guarantee the condition, if not, make sure you get a large deposit on the property from the tenant.
• A good property management company will take a lot of the work, and worry off your plate.
• Encourage long-term renters to take out renters insurance. Rent only by the month or the season, as longer-term renters tend to take better care of a property.
• Make sure you have a locked storage room that only you have the key to.

Quick Tips

• Current debt load should not exceed 40 percent of your gross income.
• Mortgage rates on vacation homes can be a quarter to half a point higher.
• Some home insurers offer discounts of 5 to 10 percent on second homes.
• Half of second homeowners leave their homes unoccupied for 330 days a year.
• The fee is usually 20 to 40 percent of rental fee.

Think Before Remodeling

• Normally, a new kitchen will have 80 to 100 percent return at time of sale, but not necessarily on a vacation home.
• Before you spend any money on improvement, check with the real estate agent how it will affect the value of the property.
• Don't count on getting your investment back on hot tubs, saunas or tennis courts.
• Safer investments include outdoor barbecues, decks with panoramic views, adding a bathroom for each bedroom or expanding two small bedrooms into one big bedroom.
• More bedrooms can add significant value to a home.
• Consider the city as more and more people now are buying vacation homes in the cities.