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Second Homes – Now is the Time to Buy

Hi! Tax Day – it’s a great time for a blog post about more tax deductions!

Have you ever considered buying a second home? A retreat from the busier lifestyle of the DC area? An investment? Well, now is a great time to buy. As a second home and Virginia countryside expert, I talk with people all the time about what will work for them.

Virginia Horse Farm

First, let’s talk about why to buy at all. You have probably seen your current or past primary home increase in market value. This added to your wealth, right?
Buying a second home gives you another way to invest in your future while enjoying the home (if it is a getaway for you) and benefitting from the tax breaks.

Why buy now? Mortgage rates are hovering around 4%. At one time not terribly long ago, they were double, and not too long before that double that double – in the teens!
Secondly, more baby boomers and others who have the desire and financial ability are expected to continue entering the second home market. This drives prices up. Avoid paying more money! Buy now before homes increase in price and you cannot afford as much house or perhaps cannot afford one at all. And before the availability of existing homes decreases and you have less to choose from. For instance, there is a shortage of older farmhouses in the Virginia countryside already.

There are so many options to choose from across the US and the world. And right in your own back yard where there is the ocean, some lakes, rivers, mountains and stunning countryside.
Whatever your preference, one recommendation is to consider how often you will use it and whether or not you will rent it out. You wil also want to consider:
1. How do I spend my free time now?
2. How much travel time would be the maximum I would want to spend to get to and from the home?
3. How often would I use the home?
4. How much maintenance is required or would I be willing to do?
5. What cost of owning the home is agreeable to me?
6. Do I want to enjoy the home seasonally, in more than one or in all seasons?
7. Does the area I am considering buying in have a growth history and /or a stable price sales history?

So, why is buying a second home a great financial investment? Often, when you or anyone buys a home, you borrow money to do so. It is referred to as “leverage.” For example, say you buy a $300,000 second home with a 20% down payment. And then suppose that the property increases in value a modest 5% per year. At the end of the first year of your ownership, the home will be worth $315,000. You have earned $15k on your investment of $60K, an increase of 25%! Isn’t that an impressive return on your money?

Do keep in mind that second homes are considered a luxury and can sometimes be a volatile market to buy in. So, get Realtor who helps you to buy wisely. Not every second home is a wise or good buy. Always invest with the current market in mind and also think of resale. Determine or project how long you will or might own it and whether or not you will make any improvements or corrections to it while you own that may increase its value.

Next – Tax Breaks – yes!

Here is a list:
1. Mortgage interest may be tax deductible depending on your use of the home, just as interest payments are on the mortgage of your primary home.
2. Property taxes – ditto on no.1.
3. Used an equity line to buy? This may be tax deductible also.
4. Renting at all: If you have used it to rent out, you may be able to deduct some expenses including depreciation, if the government considers your home to be a “vacation home.”
Ask your accountant about the distinct government regulations of claiming a home as a second home or vacation home. She can advise you on the government’s definition which has to do with the number of days you use the home for a rental vs the number that you enjoy it yourself as a vacation home. Possible other specifications. Find out the distinct guidelines. Make the numbers work well for you, if you can by adjusting the days you rent it vs. spend there yourself.

Again, as a second home and Virginia countryside expert – and a land and homeowner in Rappahannock County – I talk with people all the time about what will work for them and what they will enjoy. Reach out to me for a free consultation. Let us show around and show you some homes in the Virginia countryside or elsewhere. It will be our pleasure.

Have a great day and a wonderful summer!

Cheers,
Ken

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