Key considerations for making sure buying a second home is a smart investment.
Jennifer Wersal and her husband enjoyed traveling to Delray Beach, Florida, so much they decided to buy a second home in the southeast coastal town about 50 miles north of Miami.
Located four miles off the coast, the single-family home was in a dream location. Wersal, a realtor with the Minnesota Real Estate Team and RE/MAX Advantage Plus in Blaine, Minnesota, worked with her husband to fully research the property and location before making the purchase.
“We traveled to South Florida many times and knew this is where we wanted to be,” Wersal says. “Sand, sunshine, and fun.”
Many Midwesterners have similar aspirations of buying property in warmer climates. Others dream of purchasing a lake home, something TJ Simon, a broker and owner of Wolff & Simon Real Estate in Park Rapids, Minnesota, has helped several clients achieve. Regardless of the reason, purchasing a second home can come with many benefits, but it is also a serious financial commitment. Wersal and Simon ask anyone interested in another property to consider the following:
1. Property Taxes & Insurance on a Second Home
Understanding housing markets in different locations and states is important. For example, the housing market in Florida is very different than the housing market in Minnesota, Wersal says. Delray Beach is in Palm Beach County, Florida. Taxes in Palm Beach County are about 33 percent higher than those in Anoka County, Minnesota. Because of the threat of hurricanes, homeowners insurance in Florida was 60 percent higher than the cost of homeowners insurance for Wersal’s Minnesota property. Higher property taxes and homeowners insurance can quickly add several hundred dollars per month to one’s mortgage.
2. Rental Restrictions for Your Second Home
“Florida is littered with homeowner associations that have extensive rules created to protect and upkeep the communities,” Wersal says. “If you’re planning to purchase a second home with the intention of renting it out during the months you are not there it is important to review the association documents well.”
Some associations will also not allow for nightly or weekly rentals and some don’t include rental at all.
“If your plan is to use platforms such as Airbnb or VRBO this will be important,” Wersal says.
As VRBO and Airbnb have grown in popularity, cities across the country—including those in the Minnesota and Wisconsin lakes regions—have implemented their own rental ordinances. All vary greatly.
And remember, homeowners associations also charge monthly fees, which can range from a few hundred dollars per month to upward of $1,000, Wersal says.
3. Buying a Second Home Means More Maintenance & Upkeep
If you’re not going to be at the property year-round, who will manage upkeep? Exterior maintenance is often part of your homeowner’s association fees. If you are in a single family home, like Wersal, the homeowner is responsible for upkeep. Added Wersal, “If you find a location you are able to rent, who will clean and turn it over to the next guests for you?”
4. County, City & Shoreland Ordinances
Want to buy a lake home or cabin? Make sure you fully understand what you can do within the property once purchased, Simon says. Ordinances and regulations vary greatly from township to city, to lake. “Make sure what you want to do with the property can be done within the ordinances of the area,” Simon says.
5. Look Beyond Mortgage & Taxes
You also have to furnish the second home and account for utility services and any associated problems with those services. Those costs are constant and will generally increase over time. Be sure you factor in all related costs before making the purchase.
6.Find the Right Timing for Buying a Second Home
Everyone has good intentions. Wersal and her husband liked Florida so much they moved there for five years while renting out their Minnesota property. But life got more complicated once they had kids. Finding the time to travel back to visit family in Minnesota and check on their rental property became a challenge, so they ended up selling the Florida house—though they’re not giving up on their dream.
“Take into consideration the cost to travel to your second home and how often you will be able to enjoy it during the year,” Wersal says. “We hope to purchase again in the future in and around the same location, but something smaller, with maintenance, included versus a single-family home.”