4 Things You Need to Know About Buying a Second Property in Redlands

You’ve been a homeowner for some time now, you’ve been paying off your mortgage, and now you may be considering buying a second property. Maybe you’re thinking about a vacation home, commuter home, or investment property. It can be a smart move . . . or it can be a disaster. You have experience with home buying, but when it comes to a second property, there are some unique factors and challenges. Read on, then, to discover 4 things you need to know about buying a second property in Redlands.

1. The Full Financial Impact

Buying a second property in Redlands will be much like buying your first one, but the associated costs go well beyond just another monthly mortgage payment. And on top of that, the mortgage qualifications requirements are different as well.

Here are just a few of the important financial considerations involved in buying a second property:

  • You will often pay more for homeowners insurance (which may have to be a different type) on a second home than you pay for your primary residence.
  • If the second property is a rental, you may have to pay for utilities yourself while the property is unoccupied (which will inevitably happen at times).
  • There will be maintenance costs for a second property. If, for example, that property is a vacation, you will likely have higher maintenance costs than for your primary residence because it will be unoccupied for longer periods of time.

And then you need to consider longer-term effects. For example, will paying for a second property impede your ability to save/invest for retirement or the kids’ college? 

To learn more about the full financial impact of buying a second property, you can consult a Redlands agent at (951) 232-9704.

2. Financing Considerations

For most of us, buying a second property in Redlands will mean getting financing for the purchase.  The problem, though, is that getting financing isn’t (typically) as affordable, straightforward, and easy as for that first primary residence.

The type of mortgage you get will depend in large part on the intended use of the second property. Lenders usually have different qualification requirements and different rates for second homes as opposed to investment properties. Here are the important points to keep in mind regarding the type of financing.

  • Conventional loan – With a conventional loan, you can rent a second home for up to six months a year without the lender considering it an investment property – if, that is, you don’t use the projected rental income for loan-qualifying purposes. But the IRS, because they operate under their own rules, may still classify the second property as an investment property.
  • Jumbo loan – If you finance the purchase with a jumbo loan (or most any other nonconforming loan), your lender will consider the second property a house and not an investment property only if you rent it no more than 14 days a year.
  • Government loan – Regardless of the planned use of the property, government loans are typically not available for a second property. For VA loans, only primary residences are eligible for financing. The FHA, however, does make some exceptions when it comes to a second property designated a commuter home.

3. Maintenance Issues

And then there are the maintenance issues to consider when buying a second property. 

Let’s consider an investment property or vacation home. If you live nearby, then maintenance may not be much of an issue – you can probably take care of things yourself (if you have the time and skills). But if you live a good distance away, you will likely have to find someone to take care of the maintenance – and then pay them for doing it.

This is especially a concern when the property is located in an area susceptible to extreme or severe weather. In this case, the likelihood of more maintenance dramatically increases. 

And if the second property will be a rental property, you may have to hire a rental management company to take care of the maintenance and upkeep. Most people who buy a second property for investment/rental purposes just don’t have the time to take care of it all themselves.

4. Tax Implications

Finally, you need to be aware that buying a second property will have certain tax implications. If it’s a rental property and you make income from it, then that income is taxable. But there are also certain benefits such as deductions for mortgage interest, property taxes, depreciation, and repairs/operating expenses.

Here a just a few points to give you an idea of what you’ll be facing . . . 

  • A second home that is rented out is taxed very similarly to a primary residence with respect to interest and taxes.
  • Homeowners can deduct up to a total of $10,000 of property taxes per year, and this includes the property taxes for a second home.
  • If you plan to buy a second property for rental purposes, the taxes will be different and more challenging. You’ll have more deductions available, but you’ll also have to pay income tax on rental income.

Professional Help for Buying a Second Property

Buying a second property in Redlands can be a great move, one that offers financial and/or lifestyle benefits. But you do need to know exactly what you’re getting into and how to handle the challenges. And that’s where an experienced Redlands agent can provide invaluable assistance. So if you’re thinking of buying a second property, be sure to contact us today at (951) 232-9704.

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