Let’s first define investment and try to determine whether a second home qualifies. According to Investopedia, it is an asset or item that is purchased with the hope that it will either generate income or appreciate in value. Does this definition fit a second home? It is an asset and in some cases will produce income and if all things go well, will appreciate in value.
While the concept of owning a second home might appeal to you, it is a little different than the approach you used to purchase your primary residence. People often confuse their main residence as an investment, when in fact it is more of a necessity that is extremely illiquid except in extraordinary cases. With a primary residence, you will maintain the property for one reason: You live there. You may make a profit when you sell but a more apt description might be calling it a dividend. The result of years of care and mortgage payments will add to the cost of what you paid for the house and what is left over after that period is often used to fund the next residence. It is very infrequent that people profit in the technical sense from the sale of a primary residence but they do receive ‘dividends’.
So how should you approach your second home, a place where you will only live periodically, may rent to strangers, and any profit is wholly dependent on what is available to future users? You should approach it the same way you do an investment.
Smart investors will do extensive research prior to the purchase. This involves more than just being smitten with a particular area. It means approaching the purchase with the same emotionless skill you used to get the money to be considering this in the first place.
So let’s ask the questions every investor should ask themselves prior to any investment.
- What are your motivations? While some have described the decision to by a second home as a similar experience to getting married, it is far from it. You are looking for a more economical way to enjoy one of the places you enjoy visiting. So one of your motivations is to save money.
- Will you save money? While saving money is a motivation to consider buying a second home, it may not pencil out in actually creating anything more than convenience. Taxes, insurance, and maintenance will quickly eliminate those savings.
- How long do you intend on owning it? Every savvy investor locks in a price target or a time frame to guide the eventual selling of an investment. Sometimes, as in fixed investments like bonds for instance, the time frame is explicitly stated. If you would like to eventually retire there and convert it to your primary residence, discuss this plan with your tax person. If not, is there a point when you could see yourself selling the property, excluding the financial need to free up additional cash.
- Will you monitor market conditions and adjust your outlook? Chances are, the answer to this question is no. If you are purchasing a second home in a place like Central Oregon, not only will the area continue offer a diverse number of vacation activities and options, it will likely hold its value over longer periods of time.
- Should you go it alone? While you might be able to make some very smart equity trades, the real estate market is not as easy to navigate. Getting help from The Jones Group @ Sunriver Realty will be worth the effort.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420-3725 | Mobile: 541-420-4018 | Mobile: 503-327-9611 | Fax: 541-593-5123
Licensed in Oregon