Are You Considering Buying a 2nd Property? Here’s Our Advice!
Whether it’s for a pied-à-terre in the city or a cottage in the country, there are no bad reasons when it comes to acquiring a second residence.
However, such ambitions must correspond to one’s lifestyle and financial situation! Even though real estate is a booming investment sector, a person should not embark on such a venture too quickly.
Are you thinking about buying a second property? Our first tip is to schedule an appointment with a financial advisor to confirm that you are in a strong enough financial position.
Do You Qualify for a Second Mortgage?
In addition to confirming that you do in fact have the means to take on another monthly mortgage payment, you will have to analyze the loan for your first residence.
If the value of your current property has adequately increased, banks will have no problem financing your second purchase. It is, moreover, recommended that you obtain a preapproved mortgage, even if you are already a real estate owner.
By proceeding in this manner, you will know both your first property’s net value and have a better idea of how much you can budget for your second residence. Remember as well that a down payment equivalent to 20% of the desired property’s value is recommended, and even mandatory for an income property.
Is This Really a Good Idea?
You should think carefully about if this is really the right choice for you. During the pandemic, many households sought to swap the city for the country to gain more living space and to take advantage of the opportunity to work from home. However, is this the lifestyle you want long-term? You may think you are getting the best of both worlds by keeping your downtown residence and having a getaway surrounded by nature. Nevertheless, when life really gets back to normal, will you truly have time to enjoy your secondary residence to its fullest? The purchase of a second home must be thought of as a long-term commitment.
It would therefore be wise to select a property that is located at a convenient distance for regular weekend visits and for easy maintenance. This is valuable advice, especially if you decide to rent the property out to weekday travellers to maximize this investment’s profitability.
Finally, make sure this cottage or holiday home fits your tastes and requirements all year long. For example, does the area offer fun activities both in summer and winter? Is the dwelling well insulated and comfortable when the weather turns cold? Is the decor in a style to your liking so that you enjoy spending time there? Does the property require renovations, and can you afford to carry them out?
This secondary residence could be rented to generate a return when you are not using it. If this is your plan, make sure it is in a desirable neighbourhood!
Will Your Second Acquisition Be an Income Property?
There are additional factors to consider if you plan on becoming the owner of a home that you will not occupy yourself. While an income property does offer the advantage of generating rents to reimburse the mortgage sooner, don’t forget that rental revenues are taxable, including short-term rentals!
And don’t forget: for this type of secondary residence, you must provide a 20% down payment, minimum. Finally, make sure you are well equipped to manage tenants and have a little free time every week to take care of any minor requests they may have.
Have You Considered the Related Costs?
Although a second home, apartment or building may be viewed as an investment, be certain you can afford all the expenses such a purchase entails. Are you able to cover property taxes, annual taxes, insurance, the inspection, notary fees and any other costs related to future renovation work (major or minor) or simple maintenance?
Real estate is a fascinating field, and it may be tempting to invest to grow your money, or to get more out of life by enjoying the advantages of owning more than one property. By being well prepared, you can make your dream come true!
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