3 QUESTIONS TO ASK YOURSELF BEFORE BUYING THAT SECOND HOMEIn recent years experts have seen a rise in second home sales, and a large percentage of Americans will admit to either owning a second home, or planning to own a second home in the future. While buying a cottage by the sea, or a bungalow on the lake can be incredibly exciting and ultimately rewarding, the decision to purchase a second home comes with many financial and logistical considerations. Before you take the plunge into the sea of vacation homes, ask yourself these 3 questions.How much will the home cost, and can you really afford it?In addition to the sale price, there are many extra expenses to take into account when deciding whether or not you can afford to purchase a second home. Even a small house comes with expenses like a mortgage, property taxes, utilities, insurance and maintenance fees. If you're new to the vacation home game, it's a good idea to think these things through. When you're not living in a house on a daily basis, small problems can become big issues before you even notice them, leading to higher maintenance and insurance costs. Estimate your annual maintenance costs by budgeting about 1% - 1.25% of the purchase price, depending on the age of the home. If you decide to rent your home, you may also want to hire a property manager. Renting a vacation home comes with many tasks and duties, like advertising, screening possible tenants, cleaning, handling deposits and contracts, as well as the regular maintenance of the home. If you decide to hire a property manager, expect to pay between 20% and 30% of your rental income for the services.How do you plan to use it?People buy second homes for many different reasons and purposes. Will you be reserving the home exclusively for yourself and your family? Will you be renting it out to bring in some income to cover costs? If you are buying a home with rental income in mind, remember to bring those plans to the table when choosing your home. You may love the idea of a small cabin in an isolated spot, but that isolation may turn off potential renters. Rental houses also come with unique tax considerations, so plan on consulting with a tax professional before you buy.Are you rushing your decision?Buying a second home is a dream for many of us, and once the wheels start rolling, it is easy to be swept up in the current of emotion. As with any big decision, whether it be buying your family home or considering a big move or career change, you must not make it based on your emotions or impulses. Do your research on the area, consider the costs and stress involved, and sleep on any big steps before you take them. Buying a second home is a luxury, so you have time on your side.
