Buying My First Home in Florida: Second Home or Investment Property?

Question

I've been listening to your podcast and have already learned so much from just a few episodes—thank you for all the valuable information!

I'm not sure if you've covered this already, but I have a question. When buying a property out of state, do most people purchase it as a second/vacation home (with around 10% down) or as an investment property (typically requiring 20% down)?

I'm getting very close to buying my first home, which will likely be in Florida, and I'd really appreciate any guidance. My goal is to purchase something that can generate rental income. I've been considering a multifamily property, although I've also looked at townhomes. The challenge is that many of the townhomes have HOA fees that make the numbers less appealing.

I'd love to hear your thoughts or any advice you have for someone buying their first out-of-state property. Thank you!

Drew Sygit · Answer

Many borrowers violate the terms of their 2nd-home mortgages.

See FNMA Guideline excerpt below:

https://selling-guide.fanniemae.com/sel/b2-1.1-01/occupancy-...

Second Home Properties

The table below provides the requirements for second home properties.

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Second Home Requirements

must be occupied by the borrower for some portion of the year

is restricted to one-unit dwellings

must be suitable for year-round occupancy

the borrower must have exclusive control over the property

must not be rental property or a timeshare arrangement1If the lender identifies rental income from the property, the loan is eligible for delivery as a second home as long as the income is not used for qualifying purposes, and all other requirements for second homes are met (including the occupancy requirement above).

If the lender identifies rental income from the property, the loan is eligible for delivery as a second home as long as the income is not used for qualifying purposes, and all other requirements for second homes are met (including the occupancy requirement above).

cannot be subject to any agreements that give a management firm control over the occupancy of the property

Drew Sygit · Answer

I believe you have it backwards.

FNMA/FHLMC only allows you to rent it out for up to 2 weeks for the first 12 months of ownership.

Fannie Mae allows you to rent out a second home occasionally, but you cannot use rental income to qualify for the mortgage, and you must maintain exclusive personal control over the property under the Fannie Mae Selling Guide. [1, 2, 3]Core Rental Restrictions

• No Qualification Income: You cannot use projected or actual rental income from platforms like Airbnb or traditional leases to qualify for the mortgage. [1, 2]
• Exclusive Control: You must keep exclusive control over the property; you cannot enter a mandatory rental pool, revenue-sharing agreement, or an arrangement that gives a management firm control over occupancy. [1]
• Personal Use Priority: The home must be for your personal use and enjoyment for a portion of the year, specifically during the first year of the loan agreement. [1, 2]
• One-Year Clause: The strict rider restricting management control and requiring primary personal use applies during the first 12 months. After one year, renting guidelines loosen, though it must still function genuinely as a secondary residence rather than a full-time commercial enterprise. [1, 2, 3]

Amber Stout · Answer

@Anna Bravo -  Great question. It really comes down to your intended use of the property because that determines how it should be financed.

If your primary intent is to use it as a true 2nd home meaning you'll vacation there yourself and only rent it occasionally within 2nd home guidelines - a 2nd home loan with as little as 10% down may be a good fit.

If your primary intent is to purchase the property as a rental and generate income, then it would typically be financed as an investment property. For a single family investment property, there are programs available with as little as 15% down, while multifamily properties have different down payment requirements depending on the number of units and loan program.

I'd also encourage you to look beyond just the down payment. Things like insurance costs, property taxes, HOA fees, expected rental income, and your long term investment goals can have a much bigger impact on which option makes the most sense.

I'm a lender who works with real estate investors here in Florida, so if you'd like, I'd be happy to walk through your goals and help you compare the different financing options. Feel free to send me a message, happy to help.

Jay Hurst · Answer

If you call it a second home you will sign at affidavid at closing that you will use the property at least two weeks out of the year. That obvously does not work if you plan on renting with a long term lease. also, if you call it a seocnd home you cannot use projected rental income to help qualify for the purchase mortgage.

Wale Lawal · Answer

@Anna Bravo

In the case that earning rental income is your goal, it would typically have to be financed as an investment rather than a second home. In the event you are going to be purchasing a vacation home out of state, I would ensure the economics work based on conservative rents and have a solid local team in place.

Good luck!

Mohammed Rahman · Answer

Hey Anna,

On your question, it really comes down to how you plan to use the property. If your intention is to buy it mainly as a rental, it's generally going to be treated as an investment property. If it's a true second home that you'll use personally for part of the year, that's a different conversation. It's always best to be upfront with your lender about your plans since they'll determine which loan program fits.

I also wouldn't get too hung up on multifamily vs. townhome just yet. I'd buy whichever one makes the most sense financially. I've seen townhomes with HOA fees that completely kill the deal, and I've seen others where the HOA covers enough that it actually works out. Every property is different.

Since you're investing from out of state, I'd probably put just as much effort into finding a great local team as finding the property itself. A good agent, lender, property manager, and contractor can save you a lot of headaches down the road.

Feel free to reach out if you have any more questions - my DMs are always open!

Denise Supplee · Answer

How you finance the property really depends on how you plan to use it and your lender's requirements. If you're planning to use it as a rental, I'd have that conversation with your lender early so you understand your options. If you're buying out of state, I'd also make sure you have a trusted local team in place. A good Realtor, inspector, and, if needed, a reliable property manager can make a big difference.

Raymond J. Rodrigues · Answer

@Anna Bravo I finance a lot of investment properties whether they be short term rentals or long term rentals. Long term rentals require 15-20% down, and unless you get creative with the financing or buy in a good area, cash flow is hard to come by. I have a lot of investors that buy short term rentals with 10% down, that do cash flow, but you need to buy right. Feel free to reach out to me and I can connect you with a few professionals that I work with depending on the area that you are looking to buy in!

Jay Hurst · Answer

Yeah, that is what I was trying to say: if you call it a second home it really has to be used as a second home and you will NOT be able to use any rental income to qualify for the purchase mortgage.  I would add the second home rates are no better then an investment property at least with a program being sold to Fannie/Freddie.

Buying My First Home in Florida: Second Home or Investment Property?

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