With interest rates relatively low, many mortgage lenders are offering attractive rates, tempting would-be borrowers to finally pursue their dream of owning a vacation home or rental property. If you’re one of them, be sure to consider the other financial—and emotional—costs to owning a second home.

 

After several years of historically low interest rates, the Federal Reserve looks ready to start raising rates again. And while your savings account may benefit from such a hike, your borrowing power is likely to take a hit. Does that mean now is the time to purchase a mortgage for that second property you’ve always dreamed about?

 

I don’t have a crystal ball nor was I born with powers to predict the future, but what I do have is experience in owning a second home. It actually started as my first home, but after moving to another state, I decided to keep it, thinking the rent payments would be a nice, reliable source of income. I rationalized that house prices tend to rise at least in line with inflation, so as an asset I figured it wasn’t likely to depreciate in value. I ended up renting the house out to young professionals (and even some students) for several years, but in the end I decided the trade-off was not worth it.

 

So here are a few things for you to consider before jumping on those still-seductively-low interest rates:

 

  • Consider what the house will be used for, and how often. Is it going to be an income-generating property or vacation home? Remember that there will be taxes on that income. Property taxes cannot be overlooked.

 

  • Buying a vacation home can be a romantic idea and the decision, an emotional one. So be careful not to overlook the practical side. The cost of maintenance is something that should be factored into the equation, as should other costs. If you’re only spending a month there per year, do the math to see if a rental home or other short-term solution would be more cost-effective.

 

  • There are always unexpected costs that spring up, because things will inevitably go wrong. What happens, for instance, if the house gets flooded? Budget for emergency expenses and consider a liability umbrella insurance policy.

 

  • If you live far from the property, who is going to manage it in your absence? If it’s a vacation home that is unoccupied for much of the year, who is going to keep an eye on the property and take care of that leaking roof before it becomes a much bigger and more expensive problem? Since my rental property was in another state, I had to hire and pay a handyman to deal with issues that arose, from big emergencies like a broken boiler down to minor issues like insects. Another maintenance option might be a property management company.

 

For me, being responsible for the property long distance was too much of an emotional and time burden for it to be ultimately worthwhile. But your cost-benefit analysis may produce a completely different answer. It all depends on your priorities and personal circumstances. If you decide that it’s a good investment of your time and energy, by all means take advantage of the current interest rate, and shop around for the lowest-rate mortgage you can find. We can all relate to the maxim “home sweet home.” And for many people, a second property can be just as sweet.

 

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