Are you thinking of buying a second home to rent out? Even if you aren’t, you should be; for now, it might be the perfect time to invest in a second rental property. With the COVID19 vaccine on the horizon, we can all hope for a brighter 2021 than we thought a few months ago. Here, we bring you tips on what to consider when making the purchase.
Look Into Vacation Rentals
Once the lockdown restrictions ease, the rental market will likely grow again, especially for vacation rentals. People are going to want to go out and have fun, so you may want to delve into the vacation rental market as that may prove incredibly lucrative for you in the near future.
Never ignore budget and financing when making an investment. Many people end up making spur of the moment decisions to grab the best deal on the market and end up making poor investment decisions that prove burdensome financially.
Keep in mind that mortgage interest rates on a second property are usually higher. You will also have to pay at least 30% of the properties worth as a down payment when buying a second home to rent out. Lastly, you will not be eligible for tax benefits because of a mortgage on the second property.
The smart thing to do here is to transfer the equity from the first property to your second one and mortgage the primary residence. We suggest you work with your property manager as they are well aware of the market and will be able to provide you the best investment advice.
Look Into the Management Aspect
You will not only be the owner of a second property; you will also be a landlord unless you are planning to use it for personal vacations only, which is a costly option. If you think managing one property is difficult, managing a second property is double the work, and managing a second property that is situated in another city or state is even more burdensome for the landlord.
Often people neglect the management aspect in their excitement of buying a second home to rent out and soon find themselves overwhelmed and struggling to manage both properties. Make sure you take into account management costs and workload into account before making a purchase. Ideally, you should contact a property management company to help you make decisions and take over the property’s management.
Calculate the Return on Investment
Never neglect the numbers. Not all properties are marketable, and not all will attract a steady flow of renters. Whether you purchase a vacation rental, a single-family home, or a multi-family residential complex, calculate the return on investment so you know how easily you will be able to pay off the property and how beneficial it will be for your investment portfolio.
Buying a second home to rent out sounds easier than it actually is. You will need experts to guide you through the process, so make sure you reach out to your property manager or investment advisor as they will be able to guide you around the rental market.