Are Second Homes Good Investments?
Sometime after televisions and cars have become standards to even the lowest income earners, it became a trend to own a second house. For some families, second houses are mere vacation homes by the lakeside, in the forest or by the beach, sitting all year round while footing property and mortgage tax bills. To others, however, these come as “investments”.
But how good of investments are second homes really? Or could they even be considered “investments” in the first place?
Is Your Second Home an Investment?
What’s unappealing about owning a second house in terms of earning wealth is that it won’t pay you interest or dividends. When you say “investment”, it should be a typical monetary asset that can provide income in the future, appreciate, and can be sold at a much higher price.
- Does your second land and house provide you income now or do you expect to get income from it in the future?
- Are you planning to sell it for a much higher value?
- Are you renting it out to offset annual costs?
If your answers are yes, then your second house can fall into the investment category. If not, then your second home is simply an asset on your balance sheet.
Turning Your Second Home Into a Good Investment
The way experts think of a home’s investment potential is through thinking of it as a long-term investment. Typical homes have an average yearly appreciation of 3-5%. Comparing this to the 1% return yield of savings accounts and CDs, a home investment will look pretty attractive. But it should also be noted that if your home depreciates, it’s likely you will face a huge investment loss.
Bottom line is, your second home can only be an investment if and only if you treat it as an investment. And only when you treat it as investment will it have the chance to be a good investment.