Q - L I V 1 N G
Second homes for vacations and extra income
A second home can often help to pay
for your primary residence
by Jeffery Hammerberg
If you enjoy an annual vacation but are not
thrilled with the prospect of blowing oodles of
cash on lodging each year, you might want to
consider buying your own vacation property.
More and more homeowners are using the
equity accumulated during the recent bull
market in real estate to purchase second
homes. Leveraging one asset to acquire anoth
er can be a solid investment strategy, and
lenders are more flexible than ever before
about financing those who want to purchase
another home.
Banks tend to scrutinize credit reports
and income documentation more stringently
when you borrow to buy a second home,
because they want to ensure that both of
your mortgage obligations can be met with
out a problem. And they may require a larger
down payment and charge higher loan origi
nation fees than they did when you bought
your primary residence. Nevertheless, many
homeowners qualify easily, especially if they
have a high credit score. And with the poten
tial to profit from your purchase through
equity appreciation, the purchase can be a
savvy investment.
You may also have a chance to earn
monthly rental income, even if your tenants
are within your own circle of friends and
known business associates. By buying a nice
vacation property, you can solve your own
vacation lodging problems immediately, and
then share the location with people you know,
by renting to them as their landlord when you
aren’t using it. For those who plan to use the
second home as an income-producing prop
erty, there are also available tax deductions.
As a landlord, you can usually deduct such
things as repairs, utilities, and even routine
trips you take to visit your property and
check on its upkeep.
Many investors combine their use of the
second home, so that it is rented or leased
sometimes, and at other times it is used as a
personal vacation home. At times your beach
front condo is a vacation rental property, and
at other times it is your own private getaway.
When you aren’t making money by leasing it
to others, you save money by not having to
pay for hotel lodging at vacation time. A qual
ified tax planner can help you find all of the
various tax advantages to spending your
vacations in your own second home.
For example, a woman who owns a vaca
tion condo might decide to synchronize her
travel schedule to and from the property. She
might fly to her vacation destination in order
to oversee her landlord-related business
(inspecting repairs or checking on condo ten
ants, for instance). And at the end of her work-
related visit, her girlfriend might fly into town
to join her for the start of a long vacation, at
the same condo, after the tenants move out
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and turn over the keys. In that way it might be
possible to offset the cost of some of her vaca
tion travel, by taking legitimate business travel
deductions.
To help you get a loan for an income pro
ducing second
home, it is a good
idea to present
your lender with a
thorough business
plan and any doc
umentation that
illustrates the
practical income
potential of the
property. If the
previous owner
made a profit each
year by renting it
out as a holiday
retreat in the summertime, your lender will
be more inclined to have confidence in your
own ability to manage the property for extra
income. One good way to show income
potential is to hire a professional appraiser,
who can do a market analysis of your proper
ty by comparing it to similar income-produc
ing properties in the same area.
One popular way to finance a second
home purchase is by using an equity line of
credit based on the value of one’s first home.
Banks typically charge more interest for
these loans, but you are able to avoid many
of the closing costs that are associated with
originating a separate mortgage. And regard
less of whether you apply for a mortgage or
an equity loan, you may be eligible for tax
deductions of interest payments and other
related expenses.
While some of the
perks of second home
ownership are related to
questions that can only be
adequately answered by
your tax planner or finan
cial advisor, there are oth
ers advantages you can
derive from owning
another home, even if you
don’t consider any of the
tax consequences. For one
thing, you can help to
diversity your real estate
holdings and investments.
A second home can often help to pay for
your primary residence, in fact.
And the satisfaction and peace of mind
derived from knowing that you have your
private vacation property is priceless, espe
cially when a holiday is right around the cor
ner and you don’t have to fool with making
difficult hotel reservations. You can even
leave your clothes in a closet in your second
home and travel luggage-free, for a truly lux
urious experience. I
— For more information about real estate
for the LGBT community, visit
www.gayrealestate.com.
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SEPTEMBER 23.2006 • Q-NOTES 47