When looking for homes for sale in Macomb County, it helps to be as informed as possible. This article is focused on explaining the distinction between a second home and an investment property and clarifying the differences in marketing. As far as the overlap goes, both are great ways to accrue wealth but also involve a lot of risks and costs that any investor should heavily think over.
Sometimes called a vacation property, these are the second properties that you spend your time in when not at your primary home. While you may rent it out to third parties for a handful of days out of the year, you are the primary “user.”
Buying one is a smart idea if the property is near a regular vacation spot. There is no sense in paying for a room with a hotel or Airbnb when you have your own place–one that will ideally appreciate in value.
These are properties that you purchase solely to make money, serving the role of landlord. When it comes to investment properties, all that matters is the profitability of the venue. Anyone interested in investment properties should really sit down and do the math on their appeal, thinking about topics like.
- Public transportation options.
- How are the schools?
- What is parking like?
- What’s the local crime rate?
Anyone paying in cash can skip this section. Those who need mortgages should understand that financing either of these is a different game than financing your primary residence.
- Interest Rate: Both property types have higher interest rates than primary homes because lenders consider them riskier.
- Qualifying: Your bank may require proof that you can handle paying off two mortgages.
- Down payment: You may need to bring in a larger down payment, around 15-25% because banks want as little risk as possible.
- Rental income: When perusing investment properties, you might win over a lender by indicating how tenants’ rent could fund the mortgage. This will entail a costly specialized appraisal of other rental properties in the area.
- Location: Some lenders require second homes to be 50-100 miles away from your primary one. Investment properties can be anywhere.
- Taxes: Second homes are handled similarly to your first home, down to deducting mortgage interest when itemizing deductions. Investment properties allow you to deduct mortgage interest and most of your operating costs while also requiring you to report the rental income.
Why The Distinction Matters
While some people will try to sell an investment property as a second home for better financing, it is worth remembering that mortgage fraud is a federal crime. Most underwriting teams for lenders know of this con and will watch out for it; they will analyze all of the variables and spit out an amount suitable to the property’s true nature.