Why Secondary Homeownership is a Good Investment

Why Secondary Homeownership is a Good Investment

  • 02/17/21
 

On the Fence About Purchasing a Second Home? Here’s Why It May Make Sense for You.

One of the pinnacles of homeownership, and a testament to personal success in general, is the ability to own a second home. While there's plenty of risk in owning a secondary residence, the rewards are even greater.

From vacation oasis to income generator, let's explore three reasons why secondary homeownership is a good investment.

Your Personal Escape

First, let's start with the fact that not all investments are financial. Yes, you need to account for costs, but when considering a second home as a vacation or second residence, you can't help but appreciate what it will mean for you and your family long-term.

Be it a grand seaside escape or a cozy cabin in the mountains, second homes are often vacation homes. Places where you and your friends and family can relax, enjoy your favorite outdoor pursuits, and create memories that last—not just for years but for generations.
Speaking of the latter, owning a second home is ideal for those who wish to leave their children and decedents tangible wealth and investment property. The key is to purchase in areas that show positive appreciation and historical investment trends.
 

Income Property

Second homes go well beyond havens of personal enjoyment. They are also great income generators, either as rental property or from renovations and reselling.

For rental property, the appeal is clear. You can use the property as you see fit, then rent it throughout the remainder of the year when it would otherwise sit vacant (if you plan to retire in the home, you can pay off the mortgage long before settling down). Increasingly popular considering we're in the time of Airbnbs and VRBOs, the key is to purchase a home where consistent income is all but guaranteed.

Specifically, look for homes in timeless tourist hotspots that always prove a draw for travelers. Additionally, consider the upkeep a second home requires with renters funneling in and out. If you don't want to take on the cleaning and maintenance yourself, you'll want to partner with a viable management group.
 
The second type of income property is that of the ever-popular flip, where you purchase a home, renovate it, and then turn around and sell it for a profit. While you may not aspire to build a brand equal to that of the celebrity home-flipper, this form of second home ownership can prove both lucrative and time-consuming. While not for everyone, flipping second homes in your spare time can be satisfying for those looking to fill a home-design itch or who desire a money-generating hobby.

Tax Benefits

Finally, there are some nice tax breaks and incentives that stem from owning a second home. Depending on your ultimate use for the property, the tax advantages make second homeownership even more attractive. Incentives include:

Mortgage interest deductions up to $750,000 apply to your second home. Also, similar to a primary residence, you can write off home equity loan interest, up to $750,000. As you would your primary residence, you can deduct your property taxes, up to $10,000. This applies to every home you own, whether it's one, two, or ten.

If your second home is strictly for investment or business-related purposes, you can defer capital gains taxes through a 1031 exchange. Should you make your second house your primary residence, then sell it, you can exempt up to half a million dollars in capital gains tax. If you rent out your second home for longer than two weeks a year, you can deduct any rental expenses you might have accumulated over the 12-month rental period.

To take advantage of the tax benefits afforded by second homeowners, you should consult with a real estate tax specialist to ensure you maximize your investment.
 
Ready to learn more about the Los Angeles luxury real estate market? Whether you're buying or selling, allow Spencer Zorn to be your guide to the best of Beverly Hills, Malibu, and West Hollywood.



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