Investment property vs second home
Member since 2022 · 9 posts · 1 vote
Looking to purchase our first property, but unsure how to classify it. I am intrigued by the idea of only having to put 10% down for a "second home" and having more cash in hand for some upgrades etc, but are the tax benefits more advantageous on an "investment property". I did my research and I understand there are stipulations and different tax implications to both, but can someone put those tax differences into perspective for me? Did you classify one of your properties one way but wish you'd classified it the other? Trying to figure out which route to go. Thanks!
Looking to purchase our first property, but unsure how to classify it. I am intrigued by the idea of only having to put 10% down for a "second home" and having more cash in hand for some upgrades etc, but are the tax benefits more advantageous on an "investment property". I did my research and I understand there are stipulations and different tax implications to both, but can someone put those tax differences into perspective for me? Did you classify one of your properties one way but wish you'd classified it the other? Trying to figure out which route to go. Thanks!
Hey Kyle! I know you're asking about a tax perspective but from a lender perspective, the primary intention for usage should factor into the loan type. Lenders have been cracking down on occupancy recently and you have to sign an FBI Occupancy Cert at closing.
10% down vacation home loans work if you intend to use the property as a vacation home at least a couple weeks out of the year. If you are purchasing strictly for an investment, it would be best to pursue an investment home loan. This is a conventional, max 85% LTV (non-jumbo). Hope this helps!
Do you currently own or rent your primary residence? With this purchase, will it be strictly a rental or a part time getaway/vacation home for you (possibly rented and/or used by someone else when you are not there)? Your financing and taxation will look different depending on the answers to the above.
Do you currently own or rent your primary residence? With this purchase, will it be strictly a rental or a part time getaway/vacation home for you (possibly rented and/or used by someone else when you are not there)? Your financing and taxation will look different depending on the answers to the above.
Thanks for the reply. We currently own our primary residence. Regarding the purchase mentioned above, our initial plan was to strictly rent it out; this was before I learned of the second home option. We could easily stay there 14days/year, and it would be rented outside of that. Basically, logistically I could swing it either way, just wondering what the advantages/disadvantages are.
Do you currently own or rent your primary residence? With this purchase, will it be strictly a rental or a part time getaway/vacation home for you (possibly rented and/or used by someone else when you are not there)? Your financing and taxation will look different depending on the answers to the above.
Thanks for the reply. We currently own our primary residence. Regarding the purchase mentioned above, our initial plan was to strictly rent it out; this was before I learned of the second home option. We could easily stay there 14days/year, and it would be rented outside of that. Basically, logistically I could swing it either way, just wondering what the advantages/disadvantages are.
Hi Kyle,
Purchasing a secondary home or 'vacation home' is a great way to start something like a short term rental. Use it as a place to vacation to whenever you'd like and set it up as an AirBnb for the rest of the year.
Where in particular are you looking to purchase? Here is a blog post I wrote about on a waterfront property located on Anderson Island that has the potential of cash flowing $2000/month with a purchase price of $650k. Let me know what you think! Here is a link to the property: 10223 Totem Way
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Located on one of Puget Sound's secret islands, this amazing waterfront property has breathtaking views of Mt. Rainier and much of the south Puget Sound. With recent updates, new flooring, a fresh coat of paint and updated appliances, this home is turn key and ready to be enjoyed. Imagine owning a cash-producing, beautiful waterfront island home with stunning views and private water access for only $65k! This almost sounds too good to be true but let me show you how you can make this a reality.
Here are the numbers...
Purchase Price: $650,000
Downpayment: 10%
Interest Rate: 5.5%
Monthly Mortgage: $3,321.57
Avg. Nightly Rate: $325/night (not including cleaning)
Avg. Occupancy: 60%
Yearly Revenue: $71,175
Monthly Revenue: $5,931.25
*These numbers are conservative figures based on AirBnb data from nearby comparables
Utilities: $360/month
HOA Fee: $60/month
AirBnb Service Fee: 3%
Net Operating Income: $5,333.31
Monthly Cash Flow: $2,011.74
Total Return in Year 1: 93.97% or $61,080.71
TLDR (Too Long Didn't Read): If you bought this home with a 10% downpayment ($65k) and set it up as an AirBnb, you could cash flow approx. $2,000 per month and own a beautiful waterfront home that you can stay in whenever you want.
Looking to purchase our first property, but unsure how to classify it. I am intrigued by the idea of only having to put 10% down for a "second home" and having more cash in hand for some upgrades etc, but are the tax benefits more advantageous on an "investment property". I did my research and I understand there are stipulations and different tax implications to both, but can someone put those tax differences into perspective for me? Did you classify one of your properties one way but wish you'd classified it the other? Trying to figure out which route to go. Thanks!
Hey Kyle! I know you're asking about a tax perspective but from a lender perspective, the primary intention for usage should factor into the loan type. Lenders have been cracking down on occupancy recently and you have to sign an FBI Occupancy Cert at closing.
10% down vacation home loans work if you intend to use the property as a vacation home at least a couple weeks out of the year. If you are purchasing strictly for an investment, it would be best to pursue an investment home loan. This is a conventional, max 85% LTV (non-jumbo). Hope this helps!
Also you can purchase a second home if you do not own your primary.
Do you currently own or rent your primary residence? With this purchase, will it be strictly a rental or a part time getaway/vacation home for you (possibly rented and/or used by someone else when you are not there)? Your financing and taxation will look different depending on the answers to the above.
Thanks for the reply. We currently own our primary residence. Regarding the purchase mentioned above, our initial plan was to strictly rent it out; this was before I learned of the second home option. We could easily stay there 14days/year, and it would be rented outside of that. Basically, logistically I could swing it either way, just wondering what the advantages/disadvantages are.
Hi Kyle,
Purchasing a secondary home or 'vacation home' is a great way to start something like a short term rental. Use it as a place to vacation to whenever you'd like and set it up as an AirBnb for the rest of the year.
Where in particular are you looking to purchase? Here is a blog post I wrote about on a waterfront property located on Anderson Island that has the potential of cash flowing $2000/month with a purchase price of $650k. Let me know what you think! Here is a link to the property: 10223 Totem Way
----
Located on one of Puget Sound's secret islands, this amazing waterfront property has breathtaking views of Mt. Rainier and much of the south Puget Sound. With recent updates, new flooring, a fresh coat of paint and updated appliances, this home is turn key and ready to be enjoyed. Imagine owning a cash-producing, beautiful waterfront island home with stunning views and private water access for only $65k! This almost sounds too good to be true but let me show you how you can make this a reality.
Here are the numbers...
Purchase Price: $650,000
Downpayment: 10%
Interest Rate: 5.5%
Monthly Mortgage: $3,321.57
Avg. Nightly Rate: $325/night (not including cleaning)
Avg. Occupancy: 60%
Yearly Revenue: $71,175
Monthly Revenue: $5,931.25
*These numbers are conservative figures based on AirBnb data from nearby comparables
Utilities: $360/month
HOA Fee: $60/month
AirBnb Service Fee: 3%
Net Operating Income: $5,333.31
Monthly Cash Flow: $2,011.74
Total Return in Year 1: 93.97% or $61,080.71
TLDR (Too Long Didn't Read): If you bought this home with a 10% downpayment ($65k) and set it up as an AirBnb, you could cash flow approx. $2,000 per month and own a beautiful waterfront home that you can stay in whenever you want.
Hey Michael! Just wanted to flag some areas that are missing in this analysis: 1) Property Tax 2) Property Insurance 3) CapEx 4) Not sure if WiFi is included in utilities 5) WA occupancy tax
The NOI I'm getting is closer to $52k which would still be profitable (if self managing, but with PM, the #s would be negative).