Buying a Second Home as an Investment

Many of us dream about someday buying a second home as an investment—and possibly for family vacations as well. Before you do, be sure to know what you are signing up for.

To start, calculate the expected income and total return, as well as understand the tax benefits and costs. You’ll want to decide whether to use a mortgage and set aside money for maintenance and repairs as well. This blogs shares information to help you determine if you should pursue a second home as an investment today, if you need to wait a little while, or if you should look elsewhere for an investment.

Big questions to answer

Marla Mason, CFP® is a former owner of a bed and breakfast. The big picture questions prospective buyers should ask before making a purchasing decision include:

• Build a Credit History. Obtaining and using a credit card is one of the best ways to begin building your credit history. Using your credit card for purchases like rent or groceries can help begin to establish you as a good risk to credit bureaus. Not ready for a credit card? Try applying for a card from a credit union or getting a credit builder loan. These are lower-risk options that can help build credit with lower interest rates. Gas or department store cards can also be a good place to start if your options are limited as these cards are typically easier to obtain.
• Use Credit Responsibly. While credit cards can help build credit history, they can also be easy to misuse. Applying for too many credit cards, exceeding your credit limit and falling behind on payments can all negatively affect your credit score. In addition, closing old cards you no longer use can impact your credit history. Keeping your credit cards open will help build your credit history.
• Manage Your Debt. Loans, especially student loans, are a form of debt and are taken into account as part of your credit score. Managing these obligations will help keep you in the good graces of your lender and improve your credit score.
• Pay Your Bills On Time. Paying your bills on time signals to creditors that you’re responsible and establishes you as a good credit risk. Keep your bills organized, be aware of payment due dates and maintain regular payment schedules to ensure your newly established line of credit maintains a good credit score.
• Watch Your Credit Report. Keeping an eye on your credit score is important. Identity theft, credit card fraud and other scams can all lead to inaccurate information on your credit report; periodically checking your score will help detect these mistakes and keep your score high. You can get a free report once every 12 months from each of the three nationwide consumer credit reporting companies. Request it at www.AnnualCreditReport.com.

As always, a CERTIFIED FINANCIAL PLANNER™ professional can help you develop a plan to build or establish good credit that fits your needs. He or she will be able to help you consider different options for establishing credit and any associated risks.