Second homes and investment properties fascinate investors, who turn to Inman’s weekly Property Portfolio email newsletter as well as agents who work with this special class of client. This month, we’ll go deeper on everything from the latest at Airbnb and Vrbo to the changes investors are making to their portfolios in a shifting real estate market.
A second home can open the door to an exciting new chapter in a homebuyer’s life. Whether it’s a place to gather with family and friends or have purchased an investment property with income potential — a second home is both a luxury and a highly nuanced investment that can have a big impact on both lifestyle and finances.
Here are nine questions buyers should ask themselves before starting a second-home search and what to say as you talk them through the options.
1. Can I afford the costs of a second home?
Of course, it’s vital to drill down on your finances and get really clear on your budget. In addition to the sales price, mortgage, property taxes, insurance, utilities and various maintenance fees, you’ll want to factor in medical and liability coverage if you plan to rent out this property when you aren’t there. Also, if you’re considering keeping the home for family use, take note of the travel costs to get there.
2. What area is best for my lifestyle?
Are you looking for a pied à terre in the city, a place to retreat into nature, a family home where you can make memories in the summers or winters?
Detail out the type of activities you want to host or partake in when you’re in this home and narrow down your nice-to-haves and must-haves. Remember, a home provides access to a lifestyle, so envisioning this is the key to narrowing down key markets and neighborhoods.
3. How much time will I spend there?
Is this a place you will be every holiday season, November through January? A summer vacation home for May through August? Or a place you’ll go on weekends all year round?
Sometimes, you can determine the scale of investment in a second home by how many weeks or months per year you want to spend there.
For example, you might invest in a larger log cabin compound in Aspen if you know you and your extended family members plan to be there all through the ski season and sporadically in the spring and summer, especially if you don’t have to be in the office every day of the week.
But, you might consider a smaller residence or condo in a city like Miami if you only expect to be there for long weekends, special occasions or to make quick visits to enjoy the scene and action.
Plus, there are lots of new fractional models, such as Sonhaus, entering the marketplace that allows investors to purchase a fully managed, turn-key home in Ibiza or Mykonos and enter the second-home market in a non-traditional method. I recommend clients assess all these options depending on their current availability to enjoy a second or third home.
4. Will the home need repairs or renovations?
As you house hunt with your agent, make it known how move-in ready you expect this property to be. In addition to being mindful of essential repairs and updates, do you want to put your own stamp on the home?
Is this a place you want to renovate completely to customize for your family or friends? Understanding your own expectations (and budgetary constraints) early on will help you stay focused on homes that fit the bill, literally.
5. How will the property be managed and maintained?
How far away is the second home you have in mind, and will an onsite property manager be needed to keep an eye on security, appliances, landscaping, etc.? If you plan to rent out this home when you aren’t there, a local property manager will be key in handling maintenance emergencies and tenant issues.
Again, be sure to factor the monthly cost of a property manager into your overall budget for a second home.
6. What is my intuition saying?
When seeking out a second home, be sure to stay grounded through the process and tune in to what feels best for you. Consider your motivation to purchase and maintain an intentional vision of the desired result.
A second home is a big investment, so you want to feel confident in your decisions every step of the way, and that requires some introspection. I like to check in with my clients regularly to gauge their confidence and emotional state along the way.
Do they feel hesitant, anxious, or excited? And what about the process (or a particular home) might be bringing those emotions up, and how can I help guide them clearly through the process?
7. What are the pros and cons of this home’s location?
As we always say in real estate, so much hinges on location. If you are considering renting out the home, assess if it’s appealing to renters — are there nearby attractions, is it easy to get to, and what are its selling points to a long or short-term renter?
Be aware of potential risks that tie into the home’s natural setting as well. Residences in designated flood zones or regions that are at risk for other natural disasters — hurricanes, tornados, blizzards, even sea erosion and rising water levels — are likely to cost more to insure. Waterfront homes often attract more renters, but as the owner, you need to be aware of ownership costs.
8. Am I rushing into the decision?
I know we all have time-sensitive goals — you may want to lock down a beach house before summer comes or get a mountain retreat just in time for the holidays — but a second home is not an investment to make impulsively.
No matter what your goals are for this property, don’t talk yourself into a rash decision. Second homes are a true luxury and should complement your lifestyle. Finding exactly the right fit can take time. And a seasoned professional that is an expert in this market will serve as an invaluable guide and resource.
9. What is my exit strategy?
Although a great long-term second home can add rich, amazing new chapters to your life, these types of properties also appreciate over time, especially in markets that are highly desirable and limited inventory.
Seek out insight into the area’s market potential in the future and data on the specific property and region over the past few years to be aware of the value and potential growth.