According to the National Association of Home Builders (NAHB), Michigan is among the most popular locations for a second home, as of 2016. But don’t let that information lure you into making an uninformed decision. Buying a second home in Michigan will be truly a satisfying decision only after you factor in the pros and cons of such an investment.
Buying a Second Home: Benefits and Implications
Acquiring a second home differs somewhat from the buying process for first-time home-buyers. Now that you already have a place to call your own, the thought of buying a second home comes with the question: How will you use it? While most people look forward to making an investment property of their second home, others are interested in a home away from home. A vacation home and a rental property each have their benefits but also carry certain implications.
Benefits of Buying a Second Home in Michigan
The benefits of purchasing a second home in Michigan are either related to the improvement of your lifestyle or your finances.
Vacation homes are getaways for individuals and families alike. Most of the time, the cost of a second home is a price gladly paid for peace of mind. What the majority doesn’t think about in the beginning is that purchasing a home is not the only cost. If you wish to be a proud owner of a second home, you need to invest in inspections, repairs, moving all your belongings and unpacking hassle-free, and planning and performing maintenance procedures.
Also, with homeownership comes the price appreciation and financial gains for those who rent their second home. Whether you plan to rent only while you’re away or fully commit to the rental business, profits you believe will balance your expenses rely on tax and mortgage implications of that endeavor.
Tax and Mortgage Implications
Mortgage implications relate to the down payment for your second home in Michigan and depend on the residency type. If you are simply purchasing a second home for you and your family, save 10% of the value for the down payment. However, if you plan to rent it, you need to put aside 20% as you are financing it as an investment property.
Note that to claim the mortgage interest tax deduction, your second home must not be categorized as a rental property. Don’t hesitate to contact your tax advisor. It is the safest option if you wish to learn more about possible deductions and liabilities regarding the purchase of your second home.
Understanding the Impact of a Second Home
If buying your first home required serious considerations, then buying another one demands even more of your time and effort. Most importantly, you need to go through a list of a few crucial questions. Your answers may be game-changers.
- How much will a second home cost you?
- Can you afford to own two homes?
- How will you use the second home?
- Are you able to manage the property yourself?
- Have you considered the second home insurance costs?
The True Cost of a Second Home
It is much more than its price. Even though this would be your second home, stay focused throughout the process to avoid any hidden costs when buying a home. Aside from the mortgage and taxes, you need to include other associated expenses. You will need to pay the utilities whether you live there or not. You need to ensure your second home and conduct regular repairs. Maintenance costs may be a huge deciding factor one day and a reason you’d need an exit strategy.
Two Homes, Double the Expenses
People in need of a peaceful vacation home in their favorite spot should take into account all that comes hand in hand with that. This especially applies to the expenses that will inevitably double; utility bills, maintenance costs, duplicate furniture and appliances, etc. Don’t forget that there are still some important things to do after buying a new home that will negatively affect your wallet. If the home inspection report doesn’t demand repairs, then repainting, cleaning, changing locks and installing a surveillance system is in order.
The Residency Type Matters
Perhaps the most important thing and something you need to be certain about before you start looking for a property is how you will use it. Buying a second home in Michigan to serve as a vacation home allows you to purchase whatever and wherever you want in the Great Lakes State. However, bear in mind that it is difficult to appreciate properties that are too isolated.
If you decide to rent your property, make sure it is attractive to prospective tenants. If the vacation home isn’t close to any amenities people look for while on a vacation, your investment will most likely fail. So, to make sure that renting your vacation home will pay off, you need to choose carefully. The property should not only appeal to you, but to your future renters, too.
To be or not to be a Landlord
If you’re purchasing a second home not too far from your primary residence, and you have spare time, you are likely thinking that being a landlord will not be a problem. However, think again. Being a landlord after buying a second home in Michigan requires time and effort you may not have after all. You may not be willing to involve yourself in the activities the job involves such as
- promoting your new home
- finding and screening tenants
- arranging cleaning services
- handling paperwork
- conducting maintenance and repairs.
Insurance Cost for Second Homes
Did you know that insurance providers consider second homes higher risk? It leads to more costly coverage due to several reasons. Firstly, you won’t be there all the time which presents more opportunities for issues. An unsupervised home is where small issues quickly grow. Moreover, if you rent your vacation home, the risk of damage rises with every new tenant. After all, no one will take care of your home as you would. There is also the possibility of vandalism, directed to properties that are not supervised, that insurance providers need to factor in.
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