How it works when your second home is the first one you buy

Published Date: April 25, 2023

Home buyers consider property options ​​when your second home is the first one you buy.
Imagine this: You rent an apartment or a house in the heart of a city you love, but you can’t afford to purchase your own property there. Instead, you consider buying a second home in a different place — one where you can spend weekends or take much-needed vacations. This is the reality when your second home is the first one you buy.Buying a second home while continuing to rent your first home is a good option for some — and it’s made even easier with Pacaso. Read through this guide to identify the pros and cons of this type of second home ownership and what you should consider before buying.

Buying a second home while renting the first

When your second home is the first one you buy you can use it for personal enjoyment and as an investment.
Competitive prices and the decline in housing affordability are major housing market concerns. Many people are unable to buy a home where they currently live, especially in major U.S. cities because of:
  • Inflation
  • Increased interest rates
  • Rising home prices
  • A lack of supply in metropolitan areas
So why are some people buying a second home before purchasing their first?In simple terms, buying a second home in a smaller market may mean lower prices, depending on the destination. Families and individuals with affordable rent payments may choose to pursue this type of home ownership while continuing to rent their current residence. In fact, 81% of first-time home buyers expressed an interest in buying their second home first in order to use its rental income and property value to eventually purchase a primary residence in their desired city or state. While this type of second home ownership is unconventional, it allows owners to finance their own property for personal enjoyment and gain instead of waiting for the market to settle.

The pros and cons of buying a second home first

Potential for additional income from rentersThe monthly outlay for a second home mortgage and primary home rent 
Personal property for vacations and remote workHome maintenance and management from afar
Potential resale profits and property appreciationProperty depreciation possibilities
Certain tax breaks and advantagesUnpredictable renter behavior
Lifestyle flexibilityFeeling obligated to vacation there
Potential for larger indoor and outdoor areasCost and reliability of utilities in some destinations
There are plenty of benefits to second home ownership — especially professionally managed LLC co-ownership — but there are also a few challenges for people buying a second home first. 

Pros of buying your second home first

Before deciding to purchase your second home while continuing to rent your first home, it’s important to identify the benefits of this type of home ownership.For example, second home ownership of this nature can afford certain benefits like:
  • Potential for additional income from renters, which can help offset the expenses of a second home
  • Personal property for vacations and weekend getaways
  • Potential resale profits and property appreciation, which can be used in the future to purchase a primary residence
  • Certain tax breaks and advantages when reporting secondary income and mortgage interest
  • Larger indoor and outdoor property possibilities, including yard space and additional bedrooms, bathrooms or flex spaces
  • Lifestyle flexibility for those wanting to split their time between different living environments
  • Getaways for remote workers away from their primary home base
While the benefits of second home ownership can be attractive, there are a few challenges to buying your second home first.

Cons of buying your second home first

The challenges of buying your second home first are also essential considerations to keep in mind when exploring second home ownership.Buyers should be aware of these second home ownership challenges:
  • Multiple home payments can put a strain on finances if not budgeted  correctly.
  • Property depreciation (rather than appreciation) is possible due to changing real estate markets and property placement.
  • Home maintenance and management from afar can be costly,  especially if the repairs are unplanned or urgently needed.
  • Unpredictable renter behavior can lead to costly repairs.
  • Owners may feel obliged to vacation at their second home rather than go to another vacation destination.
  • Costs and reliability of utilities vary in off-grid or remote destinations where homes can be hard to reach.
These challenges may not be dealbreakers, but they are still important to consider. After identifying both the pros and cons of buying your second home first, there are a few major considerations to weigh before making a final decision.

6 elements to weigh before buying a second home first

There are six major factors to consider when your second home is the first one you buy.
A smart first step is determining how much you can afford to spend on a second home. Then weigh six other major considerations before jumping into second home ownership.

Intended use

How do you intend to use your property? Will it be for personal use as a vacation home or do you intend to rent it out full- or part-time? How you intend to use your second home will affect mortgages, taxes and property management. 


What is the long-term investment potential of your property, as either a vacation home or rental property? Buying a second home first can be an investment in property ownership. Of course, housing markets fluctuate, so equity gains and losses are dependent on where you buy.


Before purchasing your second home, consider taxes — particularly vacation home taxes. If you choose to lease out your second home as a rental property, you may be required to report the income you make and deduct your home expenses on your taxes, depending on the classification of the property. However, there are also some major second home tax benefits to consider as well. Many filers can deduct mortgage interest and property taxes, while income earned from renting a property less than 14 days a year does not need to be reported. Before buying, you might want to consult with a tax professional. 

Mortgage rates

Mortgages for vacation homes, investment properties and primary residences are all different, and mortgage loans for primary residences are usually easier to obtain than others. When your second home is the first one you buy, it’s important to consider how you will use the property before applying for a mortgage.Vacation home loans and investment properties also have higher interest rates than traditional loans — investment mortgage rates can climb as high as 0.75% higher than a general loan. If you plan to spend time in your second home throughout the year, registering your property as a vacation home is your best option to secure a mortgage rate that is usually about 0.5% higher than those for a primary residence. 

Home maintenance costs

Owning a second home means taking care of the property and ground. On average, home maintenance costs for secondary and rental properties are estimated to be  1% of the home’s overall property value. For example, a home valued at $150,000 will likely need approximately $1,500 in maintenance each year. Maintenance costs will vary, of course, depending on the size of your home and where it is. In addition to the general maintenance of the home and yard,  you may need to invest in specific siding or roofing materials to accommodate a homeowners association. 

Property management

If your second home is a good distance from your primary residence, you will need to consider how to manage your property from afar. You may need to consider hiring a property manger to handle the day-to-day operations of your property. The property manager is responsible for things like collecting rent from tenants, setting rent prices to fit the market, seeking out and approving new tenants, coordinating leases and following up on maintenance requests. 


Can a second home be considered a primary residence?

A second home cannot be considered a primary residence if you do not spend the majority of the year living there. Additionally, properties cannot be both a secondary home and a primary residence at the same time.

Is it harder to get a mortgage for a second home?

There are often stricter requirements and higher interest rates for second home mortgages compared to those for a primary residence. It is also possible that a secondary residence mortgage will require additional qualifications, including a down payment, cash reserves and good credit.

Navigating the ins and outs of vacation home ownership — especially when your second home is the first one you buy — is simpler when you co-own a fully managed home with Pacaso. You reap the benefits of home ownership while sharing the costs with other owners and leaving the management hassles to us. Plus, you can own property in some of the most desirable second home destinations in the world.

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