Congratulations! Buying a second home is an exciting journey. As we’ve learned from Scott McGillivray on Scott’s Vacation House Rules, whether you’re building a real estate portfolio, looking for an investment opportunity, or finally achieving your dream of owning a vacation home, buying a second property opens up so many opportunities. That being said, it is a big endeavour, and it’s critical to prepare yourself and your finances for the journey. Start with this list of the 10 critical things to consider before buying a second home in 2023.
Watch new episodes of Scott’s Vacation House Rules Sundays at 10 p.m. ET/PT on HGTV Canada, also available on the Global TV App and on STACKTV with Amazon Prime Video Channels, fuboTV, Rogers Ignite TV and Ignite SmartStream.
Know Your Budget, Play Within It
It’s easy to get carried away, scrolling through property listings, dreaming about what could be. That’s why it’s critical to know what you can actually afford before your search begins. With this number, you’ll be able to set very clear parameters, and avoid potential disappointment.
Luckily, CIBC makes it easy and intuitive with the CIBC Mortgage Calculators. In minutes you’ll receive a personalized estimate of what you may qualify to borrow, and from there CIBC can match you with a mortgage expert to guide you through financing and help you get pre-approved for a mortgage. This way, when you scroll past that perfect second property, you’ll be able to make an offer with confidence.
Establishing your short-term and long-term goals for the property before you begin your search is essential. Is your plan to rent it out? Will you enjoy it as a long-term vacation home for you and your family? Or is it both? Knowing the answer to this might guide what you’re willing to invest, and what income potential the property will carry. Pro tip: A second home that pays for itself is a great long-term investment!
Know the Unknowns
Researching the area and knowing the environment will help you understand what maintaining the property will entail. Is the area prone to floods? Are the winters harsh? Knowing the answers to these questions will prepare you for maintenance costs and repairs, or upgrades you may need to invest in.
A Beautiful Day in the Neighbourhood
Whether you plan on spending a lot of time at your second property or you plan on renting it out full time, getting to know the area and what the local attractions are is an important consideration in ensuring you’re 100% certain of the investment. Does the location have activities to offer all year round? Is it close to amenities and emergency services? Will it be a desirable destination for renters? The desirability of the location directly impacts the home’s value as a long-term investment, and as a rental property.
Plan For the Future
You’ve qualified for a mortgage, but what will your monthly mortgage payments actually be? The CIBC Mortgage Calculator can help you determine these figures before you’ve even been handed the key, and that’s key to planning for your financial future. The CIBC Mortgage Calculator can even provide insight on how to structure your payments differently to save money in the long run. (That’s advice you can bank on)
Invest in Success
If the property requires upgrades, have it inspected and lean on experts that you trust, who can provide realistic budgets for you to work with. For example, on Scott’s Vacation House Rules, Scott and Debra were tasked with transforming a dilapidated farmhouse into a family vacation home. From the start of the project, it was clear the house was rotting and infested with creepy crawlers. It not only needed a refresh, but new walls, wiring, floors and windows. Where some homes need a fresh coat of paint, others need to be completely gutted once you start peeling back the layers. And that can set you back financially. Don’t let these surprises blow your budget!
Time is Money
If the property requires a lot of maintenance and you can’t spend as much time there as you wish, long term tenants who care about the property can help with the maintenance and create a level of security when you can’t be there. If your second property is a vacation home you plan on owning long-term, engaging a long-term tenant for the first couple years is a great way to start paying down the mortgage until you can dedicate more time to the home.
How Accessible is the Second Property
When purchasing a second home as a vacation property, or even as a home to rent out, consider the distance between it and your primary residence. Is it realistic to visit on weekends? If a tenant has an emergency and needs you on site, what would it take to reach the home? Consider your current lifestyle, and the adjustments you might need to make to accommodate a second property.
Did Someone Say Property Management?
Whether you plan on enjoying your second home all to yourself or renting it out for extra income, thinking about who will be able to maintain it if you can’t is important. A property management company can have as much or as little involvement as you like, and can make things much easier on you. That said, it’s an extra cost and an important one to factor into your ongoing budget for the property.
Don’t Leave Money on the Table
When buying a second property, and carrying the costs of it, you may be eligible for certain tax benefits. And it’s always important to know the tax implications should you choose to sell it down the road. Having the right financial guide on these matters is critical. You’re not an accountant after all, you’re just a homeowner with big dreams!