Second Home or Investment Property

If you are weighing the options of buying a second home or an investment property you need to first get a clear difference between the two of them.

An investment property is not your main residence and it is used for income creation purposes while a second home is property that is used either for vacations or other personal purposes.

The way you use your second home is a major determinant on whether your property is rental or private.

For you to come up with the right decision on whether to get a second home or an investment property you need to understand the benefits and disadvantages of both properties.

1. Tax Payment

If you own a second house the revenue service regulation will deal with you in personal home terms.

For investment properties you are required to report your income and expenses to the tax authorities where you are allowed to subtract the expenses that you incur in managing the properties.

2. Vending your property

When you decide to sell your second home at a price higher than you bought it you are usually required to pay capital gain taxes.

To evade this taxation you can just change your second home into your first home. If you are selling an investment property you can only evade the tax gain taxes if you are selling it for other investment purposes.

It is complicated to run away from the IRS procedures on your own when selling your rental home; you need to find an attorney to guide you through.

3. Loan Repayments

Normally when it comes to loan repayments the terms of a second home are usually more favorable than those of an investment property.

The interest rates for investment properties loan are higher than those of a second home the reason being that you are required to pay a larger down payment than that of a second home loan which come with a second home rider.

It is always tougher to get a loan for a second home because it takes some qualifications that demand that the property should be 50 miles away from your first home or in a resort or recreational area.

If you have a property that is around 50 miles away from your home and you use it for at least 14 days in a year you’d better make it as second home other than an investment property because the tax charges will be lower.