10 Questions To Ask Before You Buy a Second Home

Despite a volatile real estate market, more and more Baby Boomers and Gen-Xers are taking the plunge and purchasing a second home. There are 6.8 million vacation homes in the United States or one for every 11 primary residences, and second home sales account for more than 40 percent of all real estate transactions. So, if you’re thinking about a house at the beach, a seasonal cabin in the mountains or a lakeside retreat that may become a retirement home at some point, make the best decision by seeking out expert advice. Here are 10 questions to ask before you buy.

1. Where should I look?

Chances are you know whether you’re a mountains or a water kind of person. Then what? While the best appreciation has historically belonged to single-family homes, condos as second homes have certain advantages when it comes to maintenance, amenities and the rental market. It’s something to consider along with related expenses in determining the kind of property that best suits your needs.

2. What are the interest and tax implications of a second home?

Complicated. A second home reserved for your personal use year-round will be treated much like your primary residence, says Jeff Burgess, president of Equity Services, Inc. of Raleigh. Second homes, which are rented out periodically, and hybrid homes, a combination of personal use and income-producing, are considered riskier properties for lenders. Thus, they are financed at higher interest rates and carry limits on deductions for interest and maintenance. Rental income is also taxable.

3. Who should I enlist to help me?

“A buyer’s agent who is familiar with the market and can provide solid references and good answers to your questions,” says John Yarko, owner of Your American Realty Company in Greensboro. Communication is key, so ask how – and how often – your agent will communicate with you. “In a populated area with many listings becoming available daily, your broker should communicate with you at least once a day,” Yarko says. “In a more rural area with fewer listings, once a week should be sufficient. I contact my clients at regular intervals if only to say nothing new has turned up.” Communication by email is beneficial as well because your agent can provide you with a hard copy of listings, even photographs and videos, for ready reference, Yarko says. “This is especially important if you are considering a vacation home that is a considerable distance from your present home.”

4. How should I start my search?

“You should describe exactly the kind of property you are looking for and ask the broker how he or she will find properties for you to consider,” Yarko advises. “A good broker will be able to repeat your property description along with other wants and needs you’ve mentioned, then use a number of resources at his disposal to find properties that match that description.” You should also join in the hunt. Search publications and internet websites on your own. If your agent has a site, log in and save properties of interest. It will help you narrow your search and provide your agent with valuable

information.

5. How quickly will this property appreciate?

Some locations are just better than others, says Lynn Hayes, owner of Lynn Hayes Properties in Carrboro. Even if you plan to own the property for the rest of your life, financial and health issues come up. You may have to sell. Your agent should understand the peculiarities of his market well enough to give you concrete information on past performance and a projection as to future trends. 

6. What’s it like to live here?

A good agent will be able to fill you in on the tangibles that might affect the value of a particular property: comparables in the neighborhood, taxes, schools, planned improvements, the rental market and other amenities which will help you in your decision making process, Hayes says. “A great

broker will also know whether the neighboring properties are owner-occupied, homes that rent primarily to families or party houses.”

7. What will it cost to maintain this property? 

The cost of a second home goes beyond the mortgage payment. Be sure to factor in homeowners’ association dues, landscaping and maintenance costs, and property taxes, Hayes says. If you decide to rent your property and go with a management company, add that expense into your deliberations. A first home is an emotional decision; a second home is an investment and should be treated as such.

8. If I decide to rent this property, will it be attractive to seasonal visitors?

A cabin in the foothills a couple of miles from a city might work while a similar property 20 miles out won’t – unless it’s on a ski slope or offers another special amenity, Hayes says. Even if you don’t plan to rent, there may be a time when you decide to do so. Plan ahead.

9. Where do I go for a local real estate attorney, lender, appraiser/inspector, insurance agent?

Your real estate agent should be able to recommend other professionals in the community, Yarko says. Then, call a variety of different lenders, who will each have their own lists of approved appraisers and inspectors.

10. What should I pay?

One mistake second home buyers make is to base their offer on the property values in an inflated market back home rather than comparables in the new location. If you do this, you will pay too much, Hayes says. If you have to sell in a couple of years you may take a loss, and if you keep the property, it won’t appreciate as quickly. Insist on good comps from your agent. Don’t rush into anything or bow to pressure because you’re only in the area for the weekend. Don’t be afraid of making a low offer if a property has been on the market for a long time or needs serious repairs. And, be prepared to negotiate.

5 Mistakes Second Home Buyers Make

• 1. Buying a home because friends in the area got a great deal. The market changes quickly, and people who love you may not be the most objective source of information.
• 2. Believing that a house priced less than or equal to one in your hometown is a good deal. You must compare prices within the new area carefully. Even if you don't plan to move again, changes in finances or health could prompt a sudden sale. You can't recoup your investment if you pay too much initially.
• 3. Trying to consider every homebuilder and resale unit on the market before you make a decision. In any given month, there are hundreds of homes on the market and under construction. Waiting until you are an expert will paralyze you. Do your homework, then let a trusted buyer's agent streamline your course of action.
• 4. Not taking into account your abilities and interests when you will live in this house. Eighty acres on a remote mountainside may appeal to you when you're a vibrant 40-something hiker, but when you're 80 getting from a multi-story house down a steep drive to the car may be downright dangerous. Wouldn't you rather have a pied-e-terre in town a short walk from Caribou Coffee?
• 5. Failing to check deed restrictions. Many communities don't allow residents to park boats on their property, limit the number of pets, and even determine the thickness of the toilet paper the sewage system will process. If you don't want to pay slip fees, plan to bring your pets, and prefer soft, two-ply tissue, take a close look at the association documents and zoning ordinances before you buy.