Second Homes: To Buy or Not to Buy

If you are thinking of purchasing a second home, and the budget will be impacted in such that there will be a noticeable decrease in funds, you may want to carefully wade into these waters. If you can do it, and there is no impact at all to your finances, you have much less to consider.

 

Motivation

Ask yourself why you want a second home and honestly answer the question. If you want it because your best friend has one, then you might want to consider simply visiting your friend. The reasons need to match-up with the budget. If the reasons outweigh the budget, and your entire family will suffer due to your whim, then you might want to re-consider the idea of a second home.

 

Impacts

There will be many impacts of owning an additional home. There will be double of all these listed things and possibly more things to consider such as plane tickets, transportation fees, and loss of work time. Think about having double—

  • Mortgage
  • Full payments
  • Home furnishings
  • Utilities
  • Insurance
  • Electronics and fees
  • Repairs
  • Support such as lawn and pool services
  • Caretakers

 

Many people have jumped into the second home market with out considering these expenses. They were lulled by the sound of waves and endless beach horizons. If you get in over your head and the market drops when you are trying to unload your property, you could put your main home at risk financially. As much as some people hate to admit it, renting a vacation home for a few weeks may be the best bet. You will have a great time without all the woes of ownership.

 

Usage

The next thing to consider is how are you going to use this property. Additionally, how often will you occupy it? If you work in the city but live away from the city, and will be there five days out of the week, then that home might be a good investment.

 

However, if you are going to use it one week out of the year and it greatly impacts the budget, you may want to think again about buying. If money is no concern, then this will be less of an issue.

 

If you are going to rent it when you are not using it, then you have some serious matters to peruse. You will need additional insurance, proper business licenses, maintenance support, and legal help with the rental agreement. If you are just going to rent to friends and family, you still need all of these things to cover yourself.

 

In fact, if you are loaning out your place for no charge to friends and family, you still need extra insurance and legal protection in case of an accident or worse. You have to be a  business man or woman if this property will ever be used by anyone but yourself and your spouse and children. To not take care of business professionally could be a disaster.

Where to Buy Property

If you have changed jobs or the company you work for have moved your worksite, you may not have any choice as to where you buy your house but if you do have a choice o where to buy, you must consider several things. Firstly you must consider the prices of properties in an area.

Although property values may rise and fall with the country’s economy, an area with high property prices will probably remain so regardless of the economy.

Once you have decided an area where you can afford to buy and would like to live, you will want to take certain things into consideration apart from just the house and its land looks. You should perhaps enquire as to where the nearest schools are located, where the nearest public transport stops are or where the shops or other amenities are compared to where your house is situated.

Often, prior to selling a house, the owner may have made some changes to hopefully get a higher price and although in some cases those changes are worth paying more for, in other cases they are little more than table dressing and so you should not be fooled into paying more than the property is actually worth.

Most buyers appreciate curb appeal which is the name given to how a house may look from the street. To give a house extra curb appeal, the house may be freshly painted and any lawns manicured. It is nice to have a house that has good curb appeal but is it really worth the 10% to 15% increase on the house’s value because of it.

When you are shown around a house which is for sale, the owners themselves may not actually be there but an estate agent most certainly will be. If this is the case, it is the estate agent that should certainly be there to show you around and answer your questions.

Do not be shy about asking questions, especially questions like how energy efficient is the house. If a house is very energy efficient, it could save you a small fortune as winters are cold, needing lots of money if the house is to be kept warm in the winter months.

If however, you are buying a house as an investment and therefore intend to allow tenants to rent it, you will be more concerned with what other people in the area charge for a months rent and whether or not there are many people in the area looking for rental properties. Usually this type of investor will use the 1% rule as a guideline.

The 1% rule is a guideline that recommends that any rent charged, should be equal to 1% of the house’s value. Therefore if an investor pays $100,000 for a house, they will look to receive $1000 in rant each month.

This percentage is said to be able to pay the mortgage as well as leave money for any maintenance needed, excess for times when the property may be vacant and also cover any property management fees that you may have.

Commercial and Residential Properties

Usually any properties available to buy are divided into two categories, commercial real estate or residential real estate. Commercial real estate is considered to be any property that someone buys in order to make money whilst residential properties are deemed to be primary or secondary residences.

The commercial real estate can be broken down further into housing complexes, starting with duplexes but including blocks of apartments, office buildings, retail space, warehouses, hotels and motels all of which though, can create cash for the owner.

The residential real estate can be further divided into detached one family houses, duplexes, otherwise known as semi-detached houses, town or row housing, condominiums or co-operatives.
Although estate agents deal with all of these types of properties, some actual agents may specialize in one particular type, usually commercial or residential.

As there is no set formal exams which people have to pass in order to become a real estate agent, learning about all of these different types is by on the job training. Although the agency the agent works for may train them in one specific type, they often get a choice as to which they would prefer. If this is the case, the agent should bare this in mind.

Commercial estate agents are more likely to work regular office hours, Monday to Friday whilst residential estate agents are very likely to have to be available 24/7.
As a commercial estate agent, you may have to take on the responsibilities of a property manager.

Although investors may take care of duplexes or single unit houses they buy, they will rarely take care of multiple housing units themselves nor will they usually take care of office blocks or multiple retail outlets and so they rely on the estate agent to be their property managers.

As a property manager, the estate agent will have to oversee any maintenance the property may need and also be responsible for rent collection. Obviously in these instances the property owners will pay the estate agent a fee for administering the property.

It is therefore possible in some instances for a commercial estate agent, to earn more over the course of a year than a residential estate agent.
Apart from any on the job training an estate agent may receive, they also have the opportunity to apply for study distance learning courses provided by both the National Federation of Property Professionals (NFoPP) and The National Association of Estate Agents.

It is perhaps by choosing which of these courses they take that can influence which type of real estate agent they become.

Considering that estate agents have to know the legal procedures for the buying and selling of all these different types of properties, as well as knowing the laws relevant to property management, they have to learn a broad scope of knowledge.

Experienced estate agents with all this knowledge can earn as much as £35,000 per year or, in locations where property prices are high, as much as £50,000 but, as a new estate agent, unfamiliar with all of these things, you will probably earn in the region of £12,000.

To support your journey of getting more clients, then you could consider implementing seo for estate agents into your marketing strategy.

What to Consider Before Investing in Real Estate

The world is moving towards the real estate business as trends have shown that it is among the most stable and promising investments today. The investment includes residential real estate, which basically guarantees stability of livelihood and commercial real estate, which is seen to be a never ending business, which generates income.

So, what should you consider before investing in real estate?

 

  1. Property Location

Location of your property will determine whether this will be a growing business. People will always be looking for a place where the environment is conducive by, proximity to amenities and neighbourhood status: noise level, cleanliness. Anything less than this is not profitable.

 

  1. Property Valuation

Valuation of the property is the next important consideration. Real estate is for business and it is essential that you compare the listing price during purchase, investment analysis, insurance premium and taxation and the listing price during sale.

 

  1. Purpose of the Investment

Knowing the purpose for investing in real estate enables you to settle down on what category suits your interest best and enables you keep track of the progress. Available categories include: Buy & Lease, Buy & sell on short term or on Long term, and Buy and Self-use.

 

  1. The expected Cash Flow

For any investment, you have to research and evaluate the value of the investment to see the expected cash flow. The same applies to Real estate; it enables you decide whether it is worth the investing or not. If the expected cash flow is too low or unstable, you can decide to invest elsewhere where cash flow will be greater.

 

  1. Leverage Management

You need to know the pitfalls of leverage. Real estate requires high financing and exposes you to high borrowing, that is, loans. Understand the risks and come up with strategies on how to settling the loans over the given time considering the expected cash flow. Do not allow yourself be caught off guard!

 

  1. Liquidity Needs

Ensure that your estate has sufficient available funds to settle down monetary bequests, taxes, debts, administration expenses and other obligations for a lifetime and even in the event of death. This ensures you don’t use personal funds and your business is a going concern.

 

  1. Consider all Options

Be sure to put into consideration all available options prior to making any move. For instance, you should consider that if you’re in a position to buy a property, why should you only rent it? Or perhaps you may be having a very good deal handy but still think of other options as the safest option. Try to consider every available option and find out the positive and negative sides of every option. This will definitely help you make your decision.

Real estate is quite a good investment yet very sensitive; it could give you great income or be the reason for your downfall. Consider the above if you are thinking of investing in real estate and assess the situation at the ground to proceed.

Investing in Real Estate

Often because of the volatility of the stock market, people consider investing in real estate instead. A popular way to invest like this is to buy to rent properties. This is where you buy a property and then rent it out. If this is done correctly you can earn the payments for the property from the rents being paid and hopefully have some left over each month.

Then when the property is paid for, all the rent becomes profit. This all sounds too easy to be true but it is not perhaps as easy as it may seem, there are several things that you must consider in order for it to be profitable.

The first thing you need to do is research the property market. Remember property prices do sometimes go down and if they do, the rent may not pay the mortgage payments or at least not make you the profit of 3% to 5% you could have received by keeping the money in the bank.

Part of your research should include which area to buy the property in. Although it would be nice to buy property in your own area so you can keep your eye on it, the property values on your area may be on the decline whilst in another area, they may be increasing.

If you do buy in an area outside of where you live, estate agents can manage the property and collect rents on your behalf. A good location for your investment does not necessarily mean it is more expensive, it may just be that it is in a good location for commuters and is serviced by a good transport system.

The next thing you must do is the math. Most people that buy to rent calculate receiving in rent 125% of the mortgage payments and whilst this may sound generous, you must remember maintenance costs or the property sitting empty for a couple of months at a time. Having decided which area you want to buy your property in, you should shop around, considering what type of property your target renters may prefer.

It may also be possible to haggle over the price as buy to rent buyers may be offered similar discounts to first time buyers. At all times during the buying process, you should keep in mind your goals of what profit margin you want and if necessary look in different areas until you find a property that will allow you to match those goals.

Of course, if you stray too far, you may have to consider an agent to manage the property and if that is the case, their fee should be added to the equation.

It isn’t all bad news though. It is of course possible to make improvements to the property, especially if you are keen on DIY. By improving the property, not only may you be able to charge more rent but the overall value of the property could increase, giving you a better long term profit.