Although it’s most common to purchase a home as a primary residence, increased financial wealth, low mortgage rates and today's economic volatility have boosted demand for second homes.
According to the U.S. Census, household net worth reached an all-time high of $100.3 trillion in 2018, nearly double what it was in 2008, at the peak of the Great Recession.
Mortgage rates are expected to drop again after the Federal Reserve recently cut baseline rates in an attempt to protect against the economic impact of the coronavirus, or Covid-19.
With the current volatility in the stock market, many are considering how real estate fits into their lives from either a personal or investment standpoint - or both.
A second home as a future primary residence is an option that can offer a host of benefits without buying in higher-priced areas. Think about this: Say your professional goals require you to be in or near urban areas most of the time, but you see living further out in the country in your future.
If you choose to rent out the second home, you can use that money to make the monthly payments while you live in in the city until your goals are achieved!
A second home can also be an investment for cash flow, either as a rental or through the simple acquisition of equity. It also diversifies your investment portfolio and protects your net worth while the market goes up and down.
In many cases, these investments can really pay off!
According to NAR’s 2019 U.S. Vacation Home Counties Report, 206 of the country’s 3,141 (6.6%) counties are “vacation home counties,” meaning 20% or more of the total housing stock is used for seasonal, recreational or occasional use.
Between 2013 and 2018, the median sales price for homes in these counties increased 36%, compared to 31% for all homes sold across the country.
Notable vacation home counties are found in Michigan, Massachusetts, Wisconsin, New Jersey, Maine, Pennsylvania, New York, New Hampshire, Maryland, Delaware, North Carolina, Vermont, Florida, California, Georgia, South Carolina, Arizona, Idaho and Oregon.
About half of second homes are cash purchases, but you don’t have to be a millionaire or a seasoned investor. According to NAR, the median income for borrowers who obtain mortgages for second homes is around $100,000.
Bay Equity Home Loans is your guide to finding the right loan to fit your particular financial situation.
Planning is key. It’s important to consider whether a second home makes sense over the long term.
Consult financial and tax professionals. They can help determine if you can manage mortgage payments in the event of a slowdown and figure out other economic considerations. A second home may be classified differently depending on usage, leading to differences in your taxes.