Should you buy a second home or an investment property? Most people will say that the answer is either one of these two options, but it’s really not. The idea of buying a second home is not the same as investing in an investment property, and it’s worth exploring the differences to see which would be right for you.
Advantages of Owning a Second Home
A second home is where you can go to relax and unwind; it’s your own space. Second homes are typically smaller than what people would want to live in full-time, making them easy to maintain. You get more bang for your buck because there is less space to pay for and less time to maintain it. This can be considered as one of many benefits of owning a second home, also the minimum is 10% down.
Disadvantages of Owning a Second Home
If you are considering adding a second home to your real estate portfolio, keep these factors in mind.
- Additional utility costs.
- HOA maintenance fees.
- Additional property taxes and homeowners insurance.
Advantages of Buying an Investment Property
Investment properties are more versatile in that they can be used for vacations, short-term rental income, long-term rentals, and as living spaces for out-of-town visitors. With an investment property, it is also easier to get financing and allows you to build future equity.
Disadvantages of Buying an Investment Property
- Common wear tear on the property begins to break down and costs money to fix.
- Maintaining Tenant Issues.
- Bigger down payment, minimum 20% down.
- Getting into new markets you’re not familiar with, especially when location is a factor.
- If your income is unstable and fluctuates seasonally (for example, if you work in retail), investing in real estate may be risky because as your income changes, so does your ability to pay for things like mortgage payments, in the event you have vacancies.