There are two reasons why people purchase a second home. The way that a second home is financed will often depend on the type of second home it is classified as. Second homes can either be vacation homes or rental properties. Up until recently, these homes were lumped together in the real estate market as “second homes”. However, with more people getting into real estate, many realty experts are suggesting that the category of second homes become formerly divided into the two distinct groups.

Rental Properties

Rental properties are second home purchases made in order to make a profit. These properties can either be long term investments or short term, flip-style purchases. They run the gamut from houses to condos and everything in between.

Long term investment rental properties are those homes that have been purchased with an eye towards selling at a point in the future when the market has greatly increased their value. These types of second homes have become increasingly popular with the big housing markets of the mid-2000s, when homes have skyrocketed in value. Markets like those do not happen very often, however, and sometimes people looking to sell homes for profit will need to be prepared to hang on to the property for a long time. In this case, the property can be rented or leased to interested parties. The lease or rent should be at the very least enough to cover your mortgage and all property taxes. In many cases, long term investors will find that they can increase their profits on second homes just by virtue of patience; like selling prices, the amount that a homeowner can charge for rent will go up over time. Eventually, the owner of a second home will be able to charge much more each month than their mortgage payment.

Houses bought to flip quickly, on the other hand, are a different matter. Often, owners of properties for the short term will finance their purchase through a mortgage, often the second mortgage in their names. The key to these properties is getting out quickly, often before the first month payment is due. Remember that the first few payments on any mortgage are where the bank stands to earn the most money in interest!

If you are renting a property, you should look into landlord insurance. Offered by companies such as, landlord insurance is specifically designed to meet the requirements a landlord may have as opposed to conventional home insurance.

Vacation and Retirement Homes

Vacation and retirement homes have risen incredibly in popularity over the past couple years. With more disposable income, more families are choosing to invest in property that they can move to when they retire. With real estate being snapped up all over the place, savvy vacationers are becoming more and more interested in buying property in prime vacation spots where they can go on their yearly holidays.

As with income properties, vacation and retirement home owners have the option of renting to finance their second home. One option is a standard rent; the owner charges a renter a monthly fee in order to live in the house. Again, the monthly rent should be set slightly higher than the mortgage payments as you will have to pay off all taxes and other fees that apply to a second home, as well as any repairs that need to be done if you have the misfortune to accept a dubious tenant. As the goal of the vacation and retirement home is not to make money, but simply to pay it off, there is not as much need to charge over the price of the mortgage payment.

Owners of vacation homes may find that it is very inconvenient to rent to a monthly tenant. This is because having someone reside in the home may interfere with you or your family’s vacation plans. The exception to this is with vacation homes that are, for the most part, seasonal, such as condos on ski hills and even many resort areas. These can be rented out to accommodate workers in the resort and still be vacant for vacation time. Second home owners might also want to look at building a suite onto their home that can be rented out (there are always workers looking for a place to rent, especially at resorts, so an add-on can prove to be a great year-round investment).

Another way for vacation home owners to finance their homes year round is to consider renting their property out on a weekly basis to other vacationers. Most people find that they buy their vacation property in an area that is very popular; hotels in these areas are often incredibly expensive, precluding many families from taking their own vacations in these areas. An increasingly large number of families, however, are beginning to realize the benefits of renting out condos or houses that belong to other people for their vacations. These rentals are often cheaper than hotel rooms and come with all the amenities of home, offering a much more relaxing experience. Families can rent your vacation home out for blocks of two or three weeks, or even more. This gives the owners a chance to plan their own vacation for when their second home is vacant, while making the mortgage payments through the fees charged year round.

Renting out vacation homes has become so popular that many resort areas have a whole new industry built around renting out other people’s property. Vacation home rental companies will handle all the bookings for the home owner as well as the cleaning and supplies, although all of these services will come at a cost. Most people will find that cost worth it, though, as the company takes care of virtually any concerns about the property.

Often, people who purchase second homes will find that they will finance themselves. The key, of course, is a sound initial investment. Don’t buy a piece of property for a vacation home in an isolated area and expect to be able to finance it through rental families all year. This is an option only for those who buy property in or near busy resorts. Buying a more isolated second home will often mean that either you will have to do a lot more work in advertising it as a rental to others, or you will have to rely on mortgage payments and your own income to finance the purchase.


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