Buying a "Second Home" First May Be the Best Real Estate Transaction of 2021

Let's be upfront: The housing market is expensive, even as condo prices fall. Plus, if you want to spread your wings a bit and buy your own house, it's much more expensive. Now that businesses are allowing employees to work from home, you may want to consider buying outside of large cities. We've had a few investors keep their houses in major cities, whether they're renting or purchasing them, and invest the money into getaway residences where they can work and relax.

If you want to take the plunge, it's possible that you could buy another property in a different location to use as an investment and later draw down on when you're ready.

I've done it before. My wife and I purchased our first home in Joshua Tree, California as an investment property. The short term rental income covered the mortgage payments, upkeep expenses, and generated a significant profit. With the extra money we'd made throughout the process, we were able to put a down payment on our current home in San Francisco.

Before you go out and buy anything, think about whether you're buying a property solely for the purpose of investment or if you want to get away.

BUYING A VACATION HOME

If you're searching for something in particular, be sure it's somewhere you love and that the journey isn't too difficult. I've gone on vacation numerous times and been so taken with a destination that I've considered purchasing property.

I'm a big fan of New York City, and I'd want to live there if I could, but realistically I wouldn't invest in a 5-hour flight more than once a year; similarly, on any given weekend, I may drive to the Sonoma Coast or the Sierras for many shorter trips. You want to get the most bang for your buck.

Location is crucial in every city. Just as in San Francisco, where location is important, part-time rentals might not be enough to cover the mortgage. Do your homework and make sure you're buying a property that will return what you want. Is it close to the action? Is it too close to the action? nLook at AirBnB and vacation rental sites to see which areas are most popular, and concentrate on them.

If you'll be located remotely from your home, you'll probably want to work with a property management firm, so keep that in mind when tallying up the costs. Also, remember that maintenance expenses are unavoidable; set aside money for them.

Even if it isn't your secondary home, secondary residences have distinct tax issues from primary residences. For the most up-to-date information, please contact your accountant.

BUYING INVESTMENT PROPERTY

If your sole purpose is to purchase a property to let, the criteria are somewhat different. Rather of concentrating on a location you want to revisit time and again, consider areas where the full-time rental market is more likely to cover the expense of the house. I previously said that I would not buy in New York City for myself, but I'd look at it as an investment property.

Check out multi-unit dwellings. You generally get more bang for your buck per unit, as well as revenue streams from many sources. This can also aid to relieve strain if one of the units is empty for a time - at least the others are still generating.

The tax implications of investment property are also different, so always check with your tax advisor. You may want to consider using a property management service and budgeting carefully to be ready for maintenance expenses as well as any revenue lost when apartments go vacant, just like with vacation properties.

Are you ready to research acquiring a vacation house or an investment property?