Check out these four tricks used to get you to spend more (without you knowing it).
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The idea of owning a second home is tempting. You can buy it near your favorite vacation spot or in your own city. Plus, real estate is a physical, tangible place to put your money. The fact that you can drive by it, walk around it, and make improvements to it with your own hands makes it attractive to buyers looking for a “safe” asset.
But the truth is, for a lot of people, the purchase of a second home is a bad idea. Real estate is riskier than most people realize—and it’s not just about the money you tie up in your property. For starters, consider these three threats to a successful second-home purchase.
Threat 1: Plain Old Dollars and Cents
Most people simply aren’t in a position financially to buy a second home. According to the Census Bureau, two-thirds of today's homeowners have a mortgage on their current homes. Jumping the gun and buying another property before your primary residence is paid off simply doubles your risk—even if you plan to rent it out when you’re not using it.
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Never buy a second property while you’re still paying for your current home.
What happens if you lose your job or your home sits vacant for a period of time? You’ll be on the hook for two mortgage payments, and that will be tough to swing even if you’re debt-free. Plus, if you plan to use your second home for vacations, it’s simply no fun to make mortgage payments every month on a place you’ll spend so little time enjoying.
Dave, who loves real estate, never recommends buying a second property while you’re still paying for your current home. Stick to all-cash real estate purchases to keep your financial risks to a minimum.
Threat 2: Time and Hassle
How much time do you spend on the upkeep of your home? While a second home may not double that time, it can mean many more hours and headaches than you think. Faucets will get leaky and appliances will go on the fritz in your second home just like they do at your current home.
If this is a vacation home that will remain unoccupied most of the time, just imagine the damage a burst water pipe could cause if it goes undiscovered for weeks. Your vacation spot is also an easy target for vandalism and burglary, so you’ll need a top-notch security system and insurance designed to cover damages that are more common in vacation homes.
Keep in mind that while these factors make second homes high maintenance, it doesn’t mean they aren’t worthwhile. If you’re willing to put in the time and effort, a vacation home, while costly compared to how much you’ll actually get to use it, can give your family a lifetime of valuable memories.
Threat 3. The Emotional Trap
Sometimes people end up with a second property “accidentally.” They might inherit all or part of their grandmother’s home, and even though it still has a mortgage on it, that emotional connection convinces them they should buy grandma’s home so it can stay in the family. They may even try to justify the purchase further by saying it will give them a convenient place to stay when they visit family members who live nearby.
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Or older family members, maybe even your parents, find themselves with huge medical bills, so they contact you with an offer: “You can buy our home as an investment. We’ll live here as long as we’re able and use the money you pay us for our home to pay our bills. When we’re gone, you can rent the home out or use it as a vacation spot—whatever you like!”
Don't let emotions push you into taking on a second home you can't afford.
Who wouldn’t want to help their family members or keep a beloved homestead in the family? But buying a second home when you’re not financially ready carries the same risk no matter what your intentions are. Plus, in most of these cases, you weren’t even looking for a second home. The emotional connection is the only reason you’re considering the purchase at all.
If the time (or property) isn’t right for you, walk away. You’ll still have fond memories of grandma’s home, and you can look for other ways to help your family members.
Get Top Dollar for Your Investment Home With a Pro’s Advice
If you’re dealing with a second home that’s turned into a money, time and emotional drain, sell it! You’ll relieve yourself of that burden and put yourself in a position to focus on other financial goals like paying off your mortgage or funding college for your kids. You can always invest in real estate again when your finances are in better shape.
Ready to sell your investment home but don’t know where to start? Download Dave’s free home seller guides today, and find out how to get more money for your home in the least amount of time.