After all the effort it takes to buy a second home, can it really be said that the house itself can add any positive, new dimension to many of life’s worthwhile pursuits? A second home not only serves as a physical manifestation of one’s accomplishments but creates tangible value as a person diversifies their assets.
The Time to Buy a Second Home is Now
There has never been a better time to take the leap into owning a second home. Not only is the housing market profitable for buys and sellers, with low mortgage rates and a breadth of options available to purchase, but with more COVID-19 vaccinations rolling out each month, people are going to be looking for places to vacation once they’re inoculated from the virus. In buying a second house this year, at the current rates, homeowners will be open to a number of advantages, including:
- Getting a historically low mortgage rate: Buying a home in 2021 presents an interesting scenario: the sticker prices on houses getting listed are rising, but interest rates on a mortgage are lower than they’ve ever been. From this perspective, it’s never been a better time to be a buyer. For the Gen X homeowners who are just finishing their 30-year mortgage, an 8% interest rate felt like an incredible blessing. Now, buyers are reporting getting locked into a 3% rate or lower, depending on the length of their loan agreement.
- A surge in renting demand: As has been mentioned already, the vacation industry is set to experience a record breakthrough this year as the federal government makes coronavirus vaccinations available to everyone who wants one. This is the very thing that people who have been stuck in their houses for over a year have been waiting for. The demand for beautiful homes to rent will increase as everyone looks to get away, and that poises the owner of a second home to subsidize many of their standing expenses with another income.
- Big gains in equity: For those locked into a fixed rate at those low percentages, payments into the mortgage make it easier to gain major equity in your new home. As your house increases in value and you are able to complete more payments on your loan, you will soon find your equity has made significant gains, increasing your assets. Buying a second home at any other time might take years to cover the ground in equity that could be made right now.
A Second Home Adds Value in Opportunity
The idea of buying another home can often be misconstrued as casting yourself into a money pit, but with proper management of the property and a keen eye to invest in a promising area, a second home can make a person wealthy with opportunities. First of all, while the upfront cost may be high to get a second home, a lot of money can be saved in tax breaks that can go into keeping the home a valuable asset. These tax benefits include:
- The interest on your mortgage is deductible: Currently, you can write off up to 100% of the interest you’re paying, up to $1 million. This includes the interest in what you’ve spent getting your property as well as improving it.
- You can deduct property taxes on a second home: Just like with the aforementioned mortgage taxes, you can deduct property taxes on a second home with no upper limit.
- Free rental taxes: While you may be planning on turning your second home into a permanent rental unit, if you only end up collecting rent on that property for 14 days or less, your taxes are free. There are also no restrictions on the rate you charge, either. And if you end up renting the property for longer than two weeks? The quotient of days used for rental divided by days the house was occupied makes up the percentage of taxes that can be deducted.
There are even more tax breaks available to owners of a second home that a financial adviser could help elucidate. Meanwhile, there is another benefit to owning a second home that can’t be overlooked: the satisfaction that comes from having a place to go, outside of your normal sphere of daily life.
While possible, it is extremely rare for a young person to own two houses. For the majority of owners with more than one property in their name, this is the culmination of a lifetime of hard work and dreaming. Owning a second home located in a beautiful area that’s in high demand can add a whole other element of excitement and purpose to life. Second homes are great for family gatherings, blowing off steam, and enjoying retirement. For those with the means, the investment in a second home can pay great dividends, both monetarily and otherwise, into your family for years to come.