What’s Your Main Reason for Buying A Second Home?

One out of every three homes in the United States was purchased as a second home. Maybe you are thinking about taking the plunge and buying a second home in Myrtle Beach, either for investment, vacation, or future retirement. If that is the case, this article is for you.

Our goal is to help you understand several aspects of buying a second home. Today we will help you decide, if you haven’t already done so, what you really want out of your second home.

Most people that come to Myrtle Beach looking for a second home are doing so for one of the following reasons:

Investment - to earn money from rental income, or future appreciation in home value, or both.
Vacation - to be located in what is considered one of the best beach in the country.
Future retirement - to establish a place to enjoy upon retirement.
Combination of the above - The new economy pretty much allows anyone to work from anywhere. Today’s generation is not inhibited by location. They are ready to explore all resources that afford their lifestyle and doesn’t confine them to just one area of the country.

What is your reason?

Depending on your answer, here are some recommendations:

Investment

If the first thoughts in your head are, “Wow! With a coat of paint and some new carpet, imagine what I could sell this property for when the economy turns around,” then you are likely motivated based upon investment goals.

Investors view buying a second home as an alternative to investing in stocks or bonds, or some other investment vehicle. Their decisions about purchasing a second home are methodical and financially based. Instead of qualifying the purchase based on their favorite vacation destination, they are more interested in the track record of appreciation in home values, which is a reason investors are so interested in Myrtle Beach properties.

CONSIDERATIONS

Planning on renting out your property? Your rental income may help you offset your monthly expenses, allowing you to buy a more expensive type of home. Our advice is to be conservative with your rental income projections. Make sure you understand the rental market in the area. This information can be obtained by your real estate agent. Also note, just because an area is more expensive does not mean it is a hot rental area. Consult with your real estate professional who knows what is going on in that area.
Renting out a condo or townhouse? Some developments have limits on how many units can be owned and rented out by non-resident investors. Make sure you know the guidelines.
Forming an LLC with your co-buyer may prohibit you from carrying out what’s called a 1031 Exchange (or “like-kind exchange“). This tax concept allows owners of investment properties to defer capital gains tax when the property is sold, so long as they purchase another investment property of equal or greater value within 180 days. Unfortunately, partnerships (i.e LLC’s) do not qualify for a like-kind exchange. However, if you and your co-buyer each establish separate LLC’s and have two entities purchase the property as tenants in common, then both of you will qualify for a like-kind exchange. Consult with a tax professional or attorney to make a proper assessment

Vacation

A vacationer is not to be confused with an investor. A true vacationer buys a second home for the mere enjoyment that the home and location of the home will provide. The decision is driven more by emotion than logic. If a vacationer has dreamed of owning a Myrtle Beach condo because of the experiences it provides, he isn’t going to be swayed to buy for a better price 10 miles down the road and off the beaten path.

CONSIDERATIONS

Know how much you can afford to spend before you begin looking at homes or condos.
Curious what other vacationers look for when buying a second home? Oceans, rivers, and lakes top the list of desired locations — around 66% of people surveyed by the National Association of Realtors said they chose a property because it was near water.
How close is the house to recreational activities?
Is the house in an area with high insurance premiums?
Is the house resistant to renter wear and tear?
Consider the words of famed investor Warren Buffet: “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.”

Future Retirement

If you see a home with deeded beach rights and your immediate thought is, “What a great place to live after I stop working or slow down,” you’re thinking like a future retiree, whether that date is just around the corner or years away. Retirees, like vacationers, often rent out their second homes to offset expenses and to see appreciation in property values. However, rental and appreciation are not the main driving force. Retirees’ goal is to have a second home they can ultimately call “home.”

CONSIDERATIONS

Evaluate property taxes. Since most retirees are on a fixed income, many look to retire in states that offer lower property taxes. Know how property taxes and overall cost of living can impact your decision.
Lock in a low interest rate. Interest rates are at or near all-time lows. If you know that you are going to hold onto your second home for the rest of your life, it is highly recommended you consider securing a rate soon.

The material provided is for informational and educational purposes only and should not be construed as legal, investment and/or real estate advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.