If you’re in the market to buy a second property, you’re probably familiar with the purchasing process. Be careful, though, to not let your confidence or knowledge push you into a rush decision. Buying a property, whether it’s your first, second or 10th requires patience, a lot of thought and smart financial planning.
Enlist a knowledgeable professional
Unless you’re a property professional, you’re going to need help. A real estate agent specializing in the area you want to buy in will be a great resource, according to Bankrate writer Poonkulali Thangavelu. “With an eye toward the long-term value of a property, the agent could fill you in on price histories and how comparable sales have fared, as well as resale prospects,” Thangavelu writes.
Determine the area
Everything about a property can usually be changed, updated or altered, except its location. In fact, the area may play a more important factor in your decision-making process to buy a second property than your budget or the asking price, according to Elizabeth Weintraub, writer for The Balance. No matter the purpose of your second home, you’ll want to make sure that it’s in a region that serves you best and within your budget. You might dream of a getaway house on a distant island, for example, but to get the most use out of a weekend retreat you should choose somewhere a reasonably close drive away from your primary residence.
Narrow down your choices
Once you’ve narrowed down the geographical location, you’ll need to determine the type of property you want. Is this property bigger, smaller or in-between what you currently have? Who will be taking advantage of this property? What is the ultimate goal for the second property? The answers to these questions will help you zero on the type of property you want.
Establish and stick to a budget
Not only does buying a second property include a sizeable upfront investment and second mortgage, it also means insurance fees, which may be different or more expensive if you choose to buy in an area that requires specialty coverage like flood insurance, according to Thangavelu. You also need to plan for things breaking down.
If the property has a purchase price of $300,000, you’ll need to budget for at least $3,000 a year to cover repairs and upkeep, according to Investopedia writer Maya Dollarhide. Depending on the property’s age, you might have to increase your budget for maintenance to 2 percent or 1.5 percent, she adds. Weintraub reminds you to factor in how much you’ll have to pay in taxes, as well as any tax breaks you might be eligible for with the purchase of a second property.
If the property you have your heart set on is in a desirable location or in an area with limited inventory, you might be competing with bids from other buyers. One way to set yourself apart from other buyers is to get pre-approval for financing from a lender in the area where you’re planning to buy, advises Weintraub. “Many listing agents will advise their clients to reject an offer if it appears without a pre-approval letter and there is financing involved,” she writes. “Ask if you can fill out a mortgage application online. You do not need, in most instances, to meet with the mortgage lender in person.”
Purchasing a second property is an exciting, albeit complicated process. These tips may make the process a little easier.