Upticks: Buying a Second Home

By Jake Falcon on October 8, 2021

Many clients have a second home or are exploring buying one. But people have varying motivations for why they want a second (or third) home. On this episode of Upticks, Jake highlights three things to consider before making a big real estate decision.

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Many clients have a second home or are exploring buying one. But people have varying motivations for why they want a second (or third) home. Here are three things to consider before making a big real estate decision.

1.What’s your purpose for buying the home?

I’ve noticed people regularly hear about the benefits of buying a second home and then renting it to generate a passive stream of income. While this does happen, if you’re thinking of a second home and viewing it as an investment, you should know sometimes it doesn’t always work out as well as the buyer hopes.

If you’re buying a second home as an investment, treat it like you would any other investment: create a business plan, think about when you envision selling the house, how much rental income you’re going to need out of the house, how you are going to finance the purchase … the list goes on. All of the responsibilities – the yard, the roof, taxes, so many more – that accompany your primary residence will impact your second home as well.

Unfortunately, owning a second home as an investment property is not as simple as buying it, renting it, and watching the money roll in. Online sites where you can rent your home charge fees, as do property management companies.

I’m not trying to talk anyone out of a second home, but I am encouraging you to work with your financial advisor and weigh the potential benefits and risks of buying a second home. It can be difficult to make money on real estate, especially in the current climate. Most importantly if you are looking to use it as an investment you will want to take your emotions out of the purchase, management, and eventual sale of the property.

In my opinion, it’s simpler to buy a second home if your main purpose is to enjoy it. Lots of clients seek a space where they can go relax and be away from the hustle and bustle of the city. If it fits within your financial plan to buy a second home you can enjoy, I say then certainly consider going for it. This is more straightforward than viewing your second home as an investment property.

2.Does it fit in your financial plan?

As I mentioned above, it’s vital to make sure a second home can fit in your financial plan. We have to make sure your long-term core goals aren’t negatively impacted by the purchase.

At Falcon Wealth Advisors, we can review your financial plan and help you determine if it makes sense to pay cash for the home or get a mortgage. We can also help determine if it’s better to put, say, 30 percent down vs. a 10 percent down payment. In fact, it’s easy for us to plug these numbers into your financial plan, and with our new planning software, we can see the direct impact in real time and evaluate how different scenarios impact your core goals. If you would like some guidance as you decide whether you should purchase a second home, please contact Falcon Wealth Advisors today.

3.When do you need to make a decision?

This is especially important for retirees and people nearing retirement. Believe it or not, even if you have millions of dollars in your portfolio, it can be difficult to receive a mortgage if you don’t have income to show, as lenders want to see your debt-to-income ratio.

If you do need a mortgage for a second home, it’s easiest to seek it before you retire and still have income to show a lender. I highly encourage you to explore mortgages before, not after, you retire.

If you’re thinking about a second home and how it will impact your financial plan and goals, please contact Falcon Wealth Advisors today. We love helping people make big decisions while pursuing their retirement dreams. You can email me directly at Jake@falconwealthadvisors.com.

Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan means to them.

-Jake Falcon, CRPC®