Why Your Second Home Is Not an Investment Property
by Jane Brown on Sep 9, 2016
"You have to know where to shop” is not just good advice shared by savvy shoppers, but it’s also good advice for anyone looking to buy a home.
If this is your first home, then the home buying process is fairly well mapped out, but if you want to buy another home, perhaps for a vacation, a family member, or as an investment, then you have to understand that there is a real distinction between a second home and an investment property.
While people often use the terms “second home” and “investment property” as if they were synonymous, this is a mistake. It’s important to recognize that these two terms cannot be used interchangeably. The legalities, financing, and taxation are all different.
You can find some high-value homes at affordable prices for sale in neighboring areas. A real estate agent can help you find the best deals by researching foreclosures, short sales, and new construction, as well as check out specific subdivisions.
Let’s take a closer look at the distinction between a second home and an investment property.
What’s a Second Home?
This is a residence you intend to occupy. You might occupy it as a vacation home or because you do business in that area for a few months of the year. It might also be a place that family members occupy. In other words, besides your primary residence, this is another home you occupy, too.
When buying this home, the lender will often ask that it not be near your primary residence. To qualify as a second home, it has to be a certain distance from your primary residence. Ideally, it should be located in a vacation spot, like a mountain or ocean area, so that it can be classified as a vacation home.
Your second home loan will have a lower interest rate than if you were to rent out this home. You will get a Second Home Rider with the mortgage.
This Second Home Rider has the following stipulations:
1. You will not use this as your primary residence but as a second home.
2. You must occupy this home, rather than use it for commercial purposes. It is for your own use and enjoyment at all times.
3. You cannot rent it or use it as a timeshare property.
4. You cannot make an agreement with another person or property management company that gives them control of how the property is used.
What’s An Investment Property?
This is a residence that you don’t occupy. When you buy it, you intend to make money from it. You could make money by renting it, profiting from appreciation, or getting a tax benefit.
An investment property, then, is one that you buy to make a profit from in some way. It’s not for your personal use or for the benefit of family members.
There are many ways to define an investment property:
1. It could be residential property for rental purposes.
2. It could be a commercial property.
3. It could be a property that you buy with the intention of “flipping.” The goal of buying this property is to resell it quickly for a profit. Often you might buy a distressed property, invest in repairing it, and then resell it at a higher cost than the amount you paid for it and the cost of repairing it.
Financially, you will have to put a larger down payment down and pay a higher interest rate on your own home.
Be Clear on Your Intentions
It’s not enough to buy another home and then figure out what you will do with it. Lenders and the government want to know what you will do with the home.
Both the financing and tax structures are different. You can’t buy a second home and then turn it into an investment property. This is because you are given easier financing terms and lighter taxes if you buy a second home as opposed to an investment property.
When you buy a second home, you can’t occupy the house for your summer vacations and then rent it out for the rest of the year. However, if you buy an investment home, you can probably occupy it for your summer vacations and rent it out for the rest of the year. While the banks and the government are fine with this because you are paying your fair share of the loan and taxes, you will be losing money if you occupy your investment home.
By getting clear on your intention when buying your home, you get the right type of loans and fall within the appropriate tax brackets.
Popular Articles
Three Places to Spend Money on the Exterior of Your Home
When you have the exterior of your home remodeled, you are investing, time, energy and convenience into the project and you want to make sure that...
70572 Views
When to Use a Brush, Roller or Sponge Brush
Brushes are a good choice for painting trim and woodwork. They are also useful for cutting in the edges around the top and bottom edges and corners...
67408 Views
Homemade Headboards-Make an Upholstered or Wooden Headboard
Homemade headboards can add a lot of personality to any bedroom. They can be coordinated with existing furniture and room decor or they can be the...
62857 Views
Creating a Cottage Kitchen with Bead Board
Kitchen decor can range from modern and bold to elegant and elaborate by using strategic kitchen pieces. One of the most popular decorating trends...
43063 Views
Gas Fireplace Diagnostics and Troubleshooting
Follow these steps for diagnosing and troubleshooting Gas Fireplaces repairs. For the average DIYer, this may seem intimidating, depending on the...
26825 Views
Latest Articles
How Much Does it Cost to Install Hardwood Floors
There are specific considerations to make before laying hardwood flooring in your house. The first thing you need to know is that the price of...
on Jan 19, 2023
Home Maintenance Jobs You Need to do This Winter
Winter is the perfect time to get some home maintenance jobs completed. Not only are you stuck inside because of bad weather, but this same bad...
on Jan 10, 2023
Design Tips to Level Up Your Kitchen
Kitchens are the heart of the home. Aside from being where we cook and eat, kitchens can be our workspaces, spaces for relaxation, and - in the...
on Jan 9, 2023
5 Irresistible Reasons for Working with a Realtor
Buying your first home can be a daunting task. If you do not know about the intricacies of the real estate industry, you will not be able to make...
on Jan 5, 2023
DIY Solar Panel Guide
DIY solar panel installation is cheaper than professional solar panel installation, but installing your panels is costly and requires some DIY...
on Jan 2, 2023
Featured Articles
What Type of Licensed Contractor Should You Hire?
on Feb 28, 2017
Hire Contractors / Estimates

Looking for a specialty project? There are many types of contractors available for your home improvement needs. Finding the right type of...
Sponsored Articles
Property investment SINGAPORE
on Jun 1, 2022
Real Estate / Finance

Are you an investor who wants to invest in a luxury condo in Singapore to diversify your portfolio? It is obvious why so many people want to invest...
Real Estate Investment for Future Generations
on Mar 14, 2022
Real Estate / Finance

Purchasing a home is not simply a financial commitment. It is also an excellent way to start accumulating your wealth. Your home is also a...
Can I Sell My House with a Leaky Roof?
on Oct 28, 2021
Real Estate / Finance

The answer to this query is YES. It is possible to sell a house with a leaking roof, but it's always essential to evaluate some factors before...
Actions
Top Categories
- Garden / Landscaping / Patio — 260
- Kitchen / Bathrooms — 239
- Real Estate / Finance — 193
- Appliance / Repair — 185
- Interior Design / Decor — 183
- HVAC / Air Conditioning — 147
- Cleaning / Maintenance — 143
- Improvements / Remodeling — 131
- Plumbing / Basements — 116
- Floors / Tile / Hardwood — 115
- Doors / Garages — 113
- Safety / Security — 112
Articles Archive
More DIY Articles
How to Find a Good House Painter Near Me
The question in the heading takes up to parts. The first part covers how to find a good house painter and the second covers finding a painter near...
Trendy Glass Garage Doors for a Full View
Glass garage doors have always been beautiful. But it has not been long since people discovered that they can be inspirational too! Wondering how a...
How to Choose an Audio Interface
An audio interface is a good buy. It enhances the work your computer can do for you by giving you additional components and capabilities. This is...
What Should You Look for in Your Next Furniture Purchase?
Price may be a factor, but it should not be the main one. For example, a cheap chair that breaks the first time someone leans back in it is a waste...
How to Buy the Best Vacuum Cleaner? A Few DIY Steps to Follow
How should you choose the best vacuum cleaner? With literally hundreds of brands to choose from, finding the best vacuum can be difficult. Price...