9 steps for buying a second home

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Kasey Tross

Palm Springs backyard with pool, grass, and outdoor seating
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Buying a second home is an exciting milestone, but it also requires a lot of prep work. If you’re ready to make the leap into second home ownership, understanding the steps ahead will make your journey smoother. 

1. Make sure you’re financially ready 

Your second home will be a significant financial commitment, and knowing you’re able to handle it will ensure your enjoyment of it for years to come. In addition to the purchase price, be sure to plan for these expenses:
  • Down payment
  • Interest
  • Property taxes
  • Homeowners insurance
  • HOA fees (if applicable)
  • Utilities
  • Maintenance fees
  • Property management expenses
As you’re crunching the numbers, it’s also important to remember that your second home can be a source of income and tax breaks as well. You can:
  • Deduct mortgage interest payments on principal amounts up to $750,000.
  • Earn short-term or long-term rental income, depending on local regulations.
  • Deduct rental-related expenses if you rent out your home more than 14 days of the year.

2. Decide how you want to use your second home

If rental income is enticing to you, now is the time to decide if – and how often – you might want to rent out your second home. Also, check rental laws in the area where you’re looking. Some communities have passed laws restricting short-term rentals. Here are a few pros and cons to consider.Pros: 
  • Earn additional income to offset expenses.
  • Avoid issues that arise from neglect.
  • Take advantage of tax breaks.
Cons:
  • Your property suffers more wear.
  • You have to manage rental listings.
  • You’ll have more maintenance and hassle.
  • You’ll pay higher utility bills. 

3. Choose a location for your second home

It’s tempting to just pick your favorite vacation spot when buying a second home, but there are other important things to consider before you start house hunting. First, how often will you be there? If your second home will be a frequent weekend getaway and/or a rental, you’ll want something within driving distance of your primary residence. If you’re only planning to use it for longer stays a few times a year, then something farther away could work well. Second, budget is a factor in the location you choose – and not just because of real estate prices. The farther away your second home is, the more challenging it will be to manage it, so you might need to hire outside help. Distant locales will also require higher travel costs, and locations that are prone to natural disasters – like beachfront property vulnerable to hurricanes – will cost more to insure. Location affects your ability to rent or resell the home. A second home in a desirable destination with warm weather like Palm Springs or year-round adventures like Lake Tahoe is likely to stay rented and sell more quickly than one in a more remote location.  

4. Decide what type of home you want 

A single-family detached home is one option when it comes to buying a second home, but don’t rule out townhomes, condos and or co-ops. These homes are probably smaller, but they are likely to cost less, offer more amenities and be less expensive to maintain.

5. Choose between sole ownership and joint ownership

Buying a second home doesn’t have to be a solo endeavor. Joint ownership can increase your buying power and reduce the maintenance and management burden of a second home. You can choose to invite one or more friends or family members to share ownership with you and use a lawyer to draw up an agreement, or you can choose Pacaso’s fully managed LLC co-ownership model.  Pacaso uses smart technology to modernize and simplify DIY joint ownership of luxurious single-family homes in highly desirable destinations. The Pacaso Crew brings together up to eight vetted co-owners to buy a home using a property-specific LLC. With Pacaso, you can enjoy a streamlined, transparent purchase process of a fully managed second home.

6. Determine your budget and secure financing

Having a preapproval letter from a lender can give you a leg up when it’s time to make an offer on your dream second home. Lenders see second homes as higher risk, so second home loans have a few key differences from first mortgages:
  • Fewer options (no FHA or VA loans)
  • Larger down payment
  • Higher credit score requirements
  • Lower debt-to-income ratio (DTI)
  • Higher interest rates
It’s important to note that classifying your second home as an investment property indicates it has the potential to generate income, and a lender may factor that potential income into their lending decision, but not always. If you choose a co-ownership LLC through Pacaso, you can apply for a competitive-rate mortgage offered by one of our banking partners. Pacaso serves a corporate guarantor of the loan, vetting qualified buyers and protecting you if a co-owner defaults.  

7. Find a real estate agent and start shopping

Your next step is to find a knowledgeable agent in your target market to help you find your second home. Do your research and ask for recommendations from locals or check online reviews. If you’re shopping with Pacaso, the steps to buying are streamlined. You can browse home listings by location, price and number of bedrooms. If you can’t find a share of a Pacaso in your desired area, the Pacaso Crew can partner with you to purchase a luxury turnkey home in the prime second home destination of your choice. 

8. Make an offer and prepare for closing

The process for a traditional purchase of a second home will be familiar if you’re already a homeowner: You make an offer, negotiate, come to an agreement and prepare for closing. Prior to closing, you will:
  • Have a professional home inspection.
  • Have a professional home appraisal.
  • Purchase homeowners insurance.
  • Conduct a final walk-through.
If you’re working with Pacaso, the Pacaso Crew will walk you through our streamlined closing process. At closing, the co-owners enjoy 100% ownership of the home; Pacaso does not retain any shares. After closing, your owner representative will help you schedule the first stay in your new second home. 

9. Move in and enjoy!

When the papers have been signed and the keys are in hand, you’ll know your preparation and hard work paid off.  If you’ve chosen co-ownership with Pacaso, you can sit back and enjoy your professionally designed and managed second home. 

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