It’s not uncommon for people to look at the job of a real estate agent and say, “Wow, that looks easy. Work part-time, pick your hours, work from home and make a lot of money.” Well, those of us who have done the job know that none of that is actually true. Similarly, purchasing a second home – whether you’re setting it up as a rental investment property or using it for your personal use – is never as easy as it looks.
If you’re purchasing a property to rent, the benefits include passive income and tax breaks. Properties on Anna Maria Island, for example, have become so expensive that just getting into a property will cost a lot more than in previous years.
You need a minimum of 20% down if you’re financing, and mortgage loans on an investment property can be higher by a point or two than primary homes or even second homes that are non-rentals. In addition, investment property loans include higher minimum credit scores and a more desirable debt-to-loan ratio. Lenders also generally require more cash reserves as well.
Maintenance of a second home, whether it’s an investment property or one for personal use, has gone up considerably in the past couple of years. Some owners say it’s as much as 10%, which seems a little low to me. The cost of materials, appliances and labor have hit all homeowners, but second homeowners are hurting on all of their homes.
Anna Maria Island, especially this season, is maintaining a very high occupancy rate for rental properties. But this is not always true and if you lose the ability to rent the property, your stream of income is severely damaged. Inflation is taking a bite out of everyone’s budget and vacations are a luxury; having a nice cash buffer will help with the anxiety of not having a tenant.
One of the major benefits of owning a second home is to watch your appreciation grow and grow and grow. And that certainly has happened in the past two years. But here again, we have seen real estate markets take a plunge, taking all of your “mental equity” along with it. You’ll need to develop nerves of steel to invest in real estate.
Finally, if you have the vision of generational family gatherings passed down through the years long after you’re gone, don’t be surprised if your beneficiaries don’t feel the same connection to the property or each other. Family members may feel differently on the amount of usage, the cost of upkeep, whether the property should be updated, should they allow rentals or if indeed they even want the property. It can become really tricky to make everyone happy, especially if one of the family members wants out and the others need to come up with the cash to buy them out or sell the property.
Even on Anna Maria Island where beach houses and other second homes are off the scale valuable, ownership isn’t easy. Just like any piece of real estate, it becomes a daily chore that will all be paid back to you while sitting on your beachfront deck. Now if you want something easy, get a real estate license; we all know that’s a piece of cake.
