Purchasing a second home as an investment property can be a fantastic way to provide yourself with a consistent source of passive income. However, this shouldn’t be taken to mean that every potential investment property you come across represents an equally wise use of your capital.
Whereas a good investment property can generate passive income for decades to come, a bad one is liable to place a strain on your finances and leave you reeling from buyer’s remorse. In the interest of avoiding the latter scenario, make sure to consider the following factors when perusing prospective investment properties.
3 Factors To Consider When Purchasing A Second Home
Here are the three factors which you must consider before purchasing a second home as an investment property.
1. Location Of The Property
Many investors tend to place more importance on the location of a home than the home itself – and the reason is simple. Homes that are found in areas with high demand for housing can command higher rents and sale prices than properties found in areas where demand is on the wane.
So, regardless of how enamored. While you are maintaining a prospective investment property, you’d do all these well. First, research its locations before committing to buy the property.
When researching the location of an investment property, there are several key things you’ll need to zero in on.
For starters, how large is the population? What’s the rate of growth, and what are the area’s long-term growth projections? Furthermore, how high are local property values and rental rates? In addition, how safe is the area?
No matter how nice a home is, residents need to feel safe when setting foot outside the property. The answers to these questions related to purchasing a second home will provide you with the information you need to make an educated investment decision. So, before buying a second home as an investment property, make sure to get the right answers.
2. Local Property Values
As stated above, local property values should be among the factors you consider when carrying out location research. For one thing, getting a feel for local property values will help ensure that you don’t wind up overpaying for your second home.
For example, if you find that similar properties in the area are selling for much lower prices than what the seller is asking, take care to request an explanation as to the seller’s reasoning.
Should they find themselves unable to provide you with a satisfactory answer, you’ll be well within your rights to ask that they alter their asking price accordingly. For purchasing a second home loan option, the property value analysis comes first in the line.
Educating yourself on local property values will also give you a good idea of how much you’ll be able to sell the property for should you ever decide to stop renting it.
In addition, researching local rental rates will provide you with an understanding of how much rent you can reasonably charge your tenants.
3. General Condition Of The Property
While location and local property values are certainly important, investors should never overlook the general condition of a potential investment home.
Depending on how much work a home requires, purchasing it may ultimately cost you more than it ever stood to make you. So, before committing to buy, insist on having all prospective investment properties thoroughly looked over by a certified home inspector.
While some issues are obvious to non-professionals, certified home inspectors are trained to identify a plethora of problems that the rest of us are unlikely to spot. Additionally, a professional inspection may be a prerequisite for buying the best home insurance.
An inspection also stands to give you the upper hand when it comes to bargaining. After all, should a professional inspection reveal the presence of issues of which you’d previously been unaware, you’ll be fully justified in requesting that the asking price be lowered to reflect the cost of fixing said issues.
For these reasons, you should never allow yourself to be dissuaded from having an investment home inspected, regardless of how sound an argument the seller makes. Whatever purpose you have for a home purchase.
For purchasing a second home to rent or for developing a project, condition checking comes first in the line of property situation checking.
Wrapping It Up:
Purchasing a second home is far from a small purchase, even if it’s being used for passive income generation. As such, this is not an investment that should be approached lightly.
In the absence of due diligence, investors are liable to find that the homes they purchase are ill-equipped to produce their desired returns. To help ensure that a second home constitutes a sound investment, give some serious thought to the factors outlined above.