SmartAsset: Second Home vs. Investment Property
Buying a second home can be significantly easier and less costly to finance than buying an investment property. Investment properties can offer you tax deductions by claiming operating expenses and ownership. Second homes, on the other hand, can also generate rental income and tax deductions for expenses, as long as the owner lives there for at least 14 days a year or 10% of the total days rented. Let’s break down the differences.
A financial advisor could help you put a financial plan together for buying a second home or an investment property.
Second Home and Investment Property Basics
In addition to a primary residence, homeowners may have a second or vacation home, as well as investment properties that are rented to third parties for income. The primary residence is where the owner lives most of the year.
Second homes are properties such as vacation homes that the owner personally occupies for more than 14 days per year, while still also maintaining a primary residence. It’s possible to have more than one second home.
It’s also possible to generate income by renting a second home to third parties for part of the year. The property will meet the definition of a second home, rather than an investment property, as long as the owner lives there for a number of days equal to at least 10% of the days the home is rented or 15 days a year.
Investment properties don’t have any occupancy requirement. They can be rented out 365 days a year to third parties. Rentals may be long-term, such as on an annual lease basis or short-term. Owner make money on investment properties from rental income and appreciation and gain tax deductions they can use to shelter income.
Financing Second Homes and Investment Properties
SmartAsset: Second Home vs. Investment Property
When applying for a mortgage, a borrower has to indicate whether the property will be used as a primary residence, second home or investment property. Primary residences are the easiest and least expensive to finance, with looser qualification standards and lower interest rates. Down payments on primary residences may be as low as 3% of purchase price on conventional loans, 3.5% on FHA loans and zero on VA loans.
Lending requirements on second homes are stricter. Lenders are likely to look for a lower debt-to-income ratio to be sure the buyer can cover the second mortgage payment, for instance. Second-home mortgages may require 10% down. Interest rates are also likely to be slightly higher than …….
Source: https://finance.yahoo.com/news/second-home-vs-investment-property-132851313.html
