If you’re looking at buying your first home or you’ve just bought it, the idea of getting a second one might seem flat-out unrealistic. However, the truth is that if you’re able to buy your first one relatively young, you’re in prime position to start budgeting and planning for a second one. It’s not about hoarding up properties, either. There are several reasons another property might be one of the smartest moves you can make.
It makes money sense
Yes, buying a second-home means tying a lot of your finances down and potentially living with a little less in your pocket from day-to-day. However, in a lot of ways, it’s a smart money move. For one, there are significant tax breaks that come with buying a second home. If it’s for personal use, you can make big mortgage deductions. Once you have a second-home, you can also sell your primary home to make up to $500,000 completely tax-free. A second-home allows for a lot of financial flexibility, not to mention its potential as a rental property.
There’s flexibility beyond the financial, there, too. For one, if you keep it as a personal property, you might want to get somewhere that isn’t as close to your workplace. A lot of people settle with living near to work even when they don’t have to and when they don’t particularly like the area. There are plenty of places on the real estate market that are much better suited for your downtime. While you’re not using it, again, you can rent it out.
The second-home can also prove as a great investment for building towards your retirement. You can make it serve as a retirement home that you’re ready to move into when you no longer want to live in the primary residence you use because it’s within commuting distance or close to schools. But before you move in, renting it out can help you build an income that contributes to a much stronger retirement plan. If you don’t sell either property, it means you have more physical assets for your family to inherit, too.
It’s not all plain sailing
Let’s not pretend there are no downsides to getting a second home, however. For one, lenders have significantly higher standards when providing mortgages to someone getting a second home. You have more existing financial liabilities so that only makes sense. If you want to borrow for a second home, you need to do a lot of work to improve your credit score and potentially prove you have the income to sustain a second mortgage. A lot of second homes are bought in environments with extreme conditions, like on the beach or by the mountains, which can mean significantly higher maintenance costs.
So, you might not exactly be able to get a second property now, but as a long-term plan, it brings with it plenty of benefits. The sooner you start making financial plans, the more likely you’re able to turn them into a reality. It’s worth thinking about.
Note: This is a collaborative post.