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Buying a Second Home

Owning a second home, once a luxury reserved only for the rich, is increasingly a possibility for homeowners of more modest wealth due to the popularity of vacation rentals. Leasing out your second home while you are not there can help offset mortgage and upkeep costs and, if handled properly, can be profitable.

Before you purchase a second home, spend some time in the area. Rent a place yourself for a few days and explore the region. Speak with homeowners about their experiences and ask for advice. Find out when peak times are for the location and decide whether or not you want to be there for all or part of that time period. Doing so may diminish your potential income from the second home since peak times are more valuable. The value of the rental may also depend on competition and growth in the area. Learn as much as you can about factors such as these before making a final decision.

The type of person you wish to accommodate in your rental may influence the type of home you purchase, or vice versa. Some homes may not be suitable for children or groups of singles, for example. If you are purchasing the second home primarily for your own use, you will most likely choose a home to suit your own needs and target certain groups of renters based on the home; if you are investing in the home for income purposes, you may consider the most common and profitable types of renters for your location and select a property accordingly.

You may handle the administration of your rental in a number of ways. If you live near the location, you may be able to manage everything yourself; if not, you will need to hire one or more agencies to handle certain aspects of the rental. There are full-service agencies which will charge a commission of 30-50% of the rental income to handle every part of the process, including advertising, repairs and maintenance, potential tenant screenings, guest welcoming services, inspection, cleaning services, bookings, and being available for renters should they require any information or services during their stay. If you do not wish to spend the time managing the property yourself, this may be the best option, but some agencies require a certain amount of weeks, including peak times, to be available for rent each year. If this is the case, you will not necessarily have the freedom to personally use your rental at your leisure, or you may have to pay the rental commission during your stay.

You may also choose to handle certain aspects of the management yourself and hiring agencies to handle other parts. For example, you may handle booking yourself, since that can essentially be done from anywhere, but hire a service to handle on-site needs—cleaning, maintenance, welcoming, and emergency contact. Or, you may simply wish to hire a booking agency to advertise your property and handle reservations. Such an agency usually charges a commission of 15-20% and will transfer the remainder of payments directly into your account.

With any service you use, inquire about commission rates, fees, and policies before making a decision. What services will they provide and to what degree? Ask other homeowners in the area for recommendations, warnings, and advice. As always, obtain details of the agency’s policies and procedures in writing before signing a contract.

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