What is a vacation / second home?
A second home is typically a property that is owner-occupied, meaning the owner will stay there at least part of the time. Cottages, vacation homes, and weekday residences (like condos) for those who travel long distances to work in cities fall under this category. The term “owner-occupied residence” can also refer to a multi-unit property where the owner leases out the remaining units while living in one of them.
The “owner-occupied” part is what matters to lenders. If you don’t live in your second or third home (at least at some point during the year), then it’s considered an investment property. As a result, there will be different criteria you must satisfy in order to obtain a mortgage. For investment properties, some smaller lenders don’t even offer mortgages.
Who is a vacation / second home for?
- Family retreats (vacations, weekends)
- Future primary residence (nearing retirement)
- Residence for family member (elderly parent, university student)
- Pied-à-terre: a small living unit, e.g., apartment or condominium, often located in a large city and not used as an individual’s primary residence
How does a vacation / second home work?
The requirements for financing a second home are similar to those for financing a first (or future) home purchase. You must have strong credit and sufficient income to satisfy all of your financial responsibilities in addition to the mortgage payments.
You may be able to own a second home with as little as 5% down.
What are the advantages?
The requirements for financing a second home are similar to those for financing a first (or future) home purchase. You must have strong credit and sufficient income to satisfy all of your financial responsibilities in addition to the mortgage payments.
You may be able to own a second home with as little as 5% down.
Long-Term Property Appreciation
The value of all assets goes up and down, but vacation homes are more likely to keep their value and go up in value because they are in popular areas with a limited supply. You can only build a limited number of homes near a shoreline, or on the mountain.
Along with stocks, bonds, and other investments, the value of real estate has historically fluctuated and will certainly continue to do so in the future. There is also no guarantee that a second home will sell for a premium price in the future.
Retirement Planning
Even if we enjoy where we work and live, every location has its cons.
Owning a vacation home allows you to build community over the course of a few years, and you may eventually end up retiring there if you have firmly planted roots that develop there over time.
Having a second home to escape to during the months we despise at our primary residence is a popular retirement goal. Finding and purchasing a second home in advance of retirement gives you the opportunity to enjoy the advantages of a location well before you actually retire, giving you time to make adjustments to your plans if you find that the location is not what you expected.
Efficiency
Having a place to store things that are only used at the second home makes travelling and packing easier.
Keeping all your ski equipment, snowboards, warm clothing, etc. at the cottage makes it easier to plan last-minute trips, lessens the amount of items to transport, and reduces packing time.
Community
Repeatedly returning to the same location can be enjoyable since you grow familiar with it, and feel at home. You have the possibility to develop long-lasting friendships with other residents; you can become an integral part of the community.
Rental Income
If you decide to rent out your home, but also use it yourself, you might be eligible to deduct some operating expenses (for tax purposes), such as: interest, utilities, cleaning fees, lawn maintenance, and management fees.
Tax Deductions
If the property remains unoccupied when you are not using it for your personal usage, or if you only rent it out for short periods during the year, you may be eligible for some tax deductions.
Where to Have Get-Togethers
Something about a location can bring up fond recollections of times spent with friends and family. Your second home can become the place where you start traditions that keep your ever-growing family close as you spread across the country.
There is no way to put a price on the intangible value of being able to pass down a property, especially a family home that has hosted and will continue to host cherished memories, from one generation to the next.
What are the disadvantages?
Initial Investment
The house may cost more than your primary residence because of its location in a desirable neighborhood. And then there’s the cost of all the furniture, linens, and dishes a new homeowner needs, which may easily add up to another 25% to 33% of the house’s total price.
Lack of flexibility
Paying a substantial amount every month for a second home can make you feel like you should use it on a regular basis to justify your investment. You need to be sure you’ll continue to enjoy the property 5-10 years from now as much as you do today. If you want to sell your house, it could take months or even years to get the price you want.
Travel Time
Most likely, a second home will be hours away from your main home, so you’ll have to drive for a long time or fly. If you want to buy a home on the other side of the country, you’ll need to reduce the frequency of your trips there and increase the length of your stays once you get there.
Repairs and Upkeep
As the homeowner, you are responsible for performing any necessary repairs. The repair bills for things like a burst pipe or a leaking roof are your responsibility. It’s possible that you’ll be the one to identify the issue, call in the repairmen, and meet them on site. In certain situations, you may spend your whole visit working on the property, which is surely not what you envisioned when you dreamed of ownership.
Expensive Mortgages
You may be eligible for an insured mortgage. However, this will not always be the case. Depending on the property type, location and price, a larger down payment and loan amount may be required, possibly at a higher interest rate.
What do I need to get started?
1. Take a look at your finances
How much are you able to invest into this second home?
Your down payment? Monthly mortgage payments? Possibly initial repairs or new furniture, appliances, etc.
2. Determine your minimum requirements
What will this property be used for? Vacations? Weekends? A pied-à-terre in the city?
What should be included? Ex: Number of bedrooms, parking, easy access to public transportation, waterfront, secluded area, gated community, etc.
3. Set your budget
How much does this property cost? How much are you willing to pay?
4. Choose your ideal location
In the city? Further up north? Near the water? On the other side of the province?
5. Then contact us!!
We’ll work with you to crunch some numbers, and set up a plan so you can start house shopping.
