Buying a Second Home in Seven Steps

Thinking about buying a second home? Whether you're looking for an investment property, a getaway, or a place to eventually retire, plan to take these seven important steps.

One: Decide Whether a Second Home Makes Financial Sense

Whether or not you consider yourself an investor, you no doubt want your second house purchase to be a sound financial move. Yet many second-home owners complain that the house -- including not just the purchase price, but ongoing expenses -- ended up costing more than they'd ever imagined. You'll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won't be there every day (such as hiring a management company and the relatively high cost of hazard insurance). Then you'll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income (it's often not enough to cover your monthly costs).

Two: Decide Where, and What Type of Home You'll Buy

A home in a badly chosen location won't serve anyone's goals -- an investor can't resell or rent it, a vacationer won't enjoy it, and a future retiree may have to pick up and move again. You'll need to rely on both market research and your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.

The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the areas of the property outside your unit are governed and maintained by a community association (of which you'll be a member). However, you'll pay for that maintenance in the form of monthly fees and special assessments.

Three: Look into the Tax Implications

Second-home owners need to worry about both property taxes (which vary by state and locality) and, if renting out the place, income tax. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year. For example, sometimes buying a home just over a town's border can significantly trim your annual property tax bill. And if you're renting out a vacation property, the amount of days you yourself spend there can make a difference in how much you'll owe in income tax.

Four: Come up With Short-Term Cash and Long-Term Financing

Most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. In order to come up with down payment cash (which should be at least 20% of the purchase price), you may need to get creative. Using the equity in your primary home, borrowing against a life insurance policy, or refinancing your car are among the possibilities.

Most buyers will also need to get a home loan to help with the rest of the financing. Shop around: By reviewing the various mortgage options and sample payment schedules and factoring in your own short- and long-term goals, you should be able to find a mortgage that suits you.

Five: Consider Nontraditional Financing Methods

One unique way to help finance your second home is to tap the "Bank of Family and Friends." Borrowing from parents, siblings, or close friends lets you keep the tens of thousands of dollars in interest you'll pay over the life of your mortgage loan within your circle, rather than handing it over to a bank.

Another money-saving approach is to partner with another purchaser; for example; sharing a vacation home in the sun. Shared ownership is a growing trend -- but not one to rush into lightly. You'll want to start by determining whether co-ownership with a particular person is likely to work. Then draft a written agreement to spell out how ongoing costs will be split and deal with other potential sources of contention, such as what happens if one of you wants out after a few years or if one of you dies.

Six: If You'll Be a Landlord, Be Prepared

Some second-home owners plan to rent out their properties long-term with the idea of eventually turning a profit (rental properties usually take some years to make money). Others just want to rent out their property periodically as a means to offset expenses. Either way, you're taking on the role of a landlord, which means more than just following your instincts. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved. Also, the obligations of managing a long-term rental are quite different from those of a periodic rental.

For more on becoming a landlord, see First-Time Landlord; Renting Out a Single-Family Home, by Janet Portman, Marcia Stewart, and Michael Molinski.

Seven: Take Steps to Protect Your Second Home

Protecting your property starts before you buy and continues long afterwards. For example, you'll want to get a proper home inspection prior to purchasing, so as to deal with some repair issues up front and get a sense of what other repairs may be looming.

You may need to purchase title insurance -- typically required by the lender -- in case problems such as past ownership or debt claims on the property surface after the purchase.

Your lender will also require that you carry hazard insurance, to protect your property against damage from such causes as theft, fire, flooding, or windstorms. The cost of insurance for second homes is usually higher than for first homes, since you won't be there as much. You will probably want to add liability insurance, covering you and members of your household for accidental injuries to your visitors. (Together, hazard plus liability insurance add up to the standard homeowners' insurance package.) Taking these protective steps will guard not only your home, but your peace of mind.

Shared from:  http://www.nolo.com/legal-encyclopedia/buying-second-home-seven-steps-30010.html

Seven Tips for First-Time Home Sellers

Putting your house on the market isn't intimidating if you plan ahead & enlist the right help.

                               

                 Make sure you price your house right from the beginning of the process.  A too-high price could mean your house sits on the market longer.

A number of economists are forecasting an increase in home sales this year, & some are predicting that more first-time buyers will be in the mix.  

That's great news for sellers, particularly first-time sellers most likely to have the kind of starter homes these buyers will want.  Below are tips for those selling a home for the first time.

Prepare for your own purchase

Before selling your home, give some careful thought about where you will live next, said Hedda Parashos, owner of Palisade Realty in Spring Valley, Calif. "Planning ahead will save the time & money associated with moving multiple times or trying to get out of a deal after you sign a purchase agreement," she said.  "Your Realtor can help you locate a new home or rental before you close escrow or negotiate a lease back."

If your plan is to buy another home & finance it, get pre-approved for a mortgage.  That way, you'll know what you will be able to afford - & can eliminate surprises, she added.

It's also getting more common these days - in certain markets - to purchase a home contingent ont he sale of your existing one, said Christina Esala, associate broker & team leader with Tierra Antigua Realty, in Tucson, Ariz.

Get the home move-in ready

If you can afford it, do whatever you can to make your home move-in ready.  That means replacing ripped screens, broken baseboards, leaky faucets & making cosmetics repairs, as well as updating landscaping.  Parashos said.  Your house needs to be in showing condition all the time, she added.

At this point, start looking at your home as a house - stripping all sentimental value from the place, since your buyer won't care about the tree you planted or the kitchen tile you installed yourself, said  Geoff Bray, real-estate agent & partner at the Reuter Bray Group of RE/MAX Results in Minneapolis.

Enlist the help of a good real-estate agent

Many people choose real-estate agents based on referrals from family & friends, but look beyond that to make sure you're working with someone who does a lot of business in your particular neighborhood.  While sales information for individual agents often isn't publicly available, you could check with your local Realtor association group for the date, call the local multiple-listing service or ask a brokerage about their top sellers.  

Online interviews of real estate agents can also be helpful, Esala added.  At the very least, get statistics from the agent, asking him or her how many homes they've sold recently, where the homes have been located & what the average sales prices have been, Esala said.

Price it right

A good real-estate will help you price the home right - from the start.  "Nothing will attract more buyers than making the right choice when pricing your home & nothing will deter buyers more than overpricing."  Parashos said.  Overpricing often means a longer stay on the market as well as future price cuts - which often makes a home listing look stale & less desirable.

Market the home appropriately

In addition to getting on the multiple-listing service, or MLS, as well as home listing sties online, your real-estate agent might recommend other methods of advertising, including open houses & direct mail postcards.  Ask the agent how he or she plans on marketing the property before hiring the agent.

Quality photography of the home is also important.  Those who use professional real-estate photos sell listed homes 32% faster than all other listings, according to VHT Studios, a real-estate photography network for homes & businesses.  Take it for what it's worth, a statistic from a company in the photography industry.  But also think about the homes that you spend the most time looking at online; chances are they're the ones with a variety of clear, quality pictures.

Make the house available

Some sellers create restrictions on when their home can be shown, but being inflexible on this point can hurt you. "People, if they want to see it now...they're going to contract that agent & going to want to see it immediately," Esala said.  "Make your home available for all of the daylight hours," she said.  Otherwise, within two days, prospective buyers will find another home & forget yours.

Plan your negotiation

Know what you will & won't give up when it comes to your sale, from price to closing date, repairs to closing costs.  "Knowing what outcome you want in advance will help you avoid haggling over minor items that could cost you the sale," Parashos said.

Finally, don't focus as much on the final sales price as on the final net price, Bray said.  Many first-time buyers ask for sellers to help with closing costs, for example, which affects net cost.