12 Costly Expenses Second-Home Buyers Often Overlook

Once you’ve been through buying one home, it might seem like old hat to buy a second. You confidently strut into open houses, knowing you have this under control and are ready to make some smart homeowner moves.

But buying a second home isn’t exactly like buying a first. There are nuances that first-time second-home buyers need to know to avoid making costly mistakes that could derail your dream vacation home or successful investment property.

Here’s what you need to know regarding the legalities, tax implications, and management issues that could arise when buying a second home for the first time.

Whether you’re buying a vacation home or an investment property, the mortgage rate will be higher than a 30-year or 15-year mortgage on a primary residence. You should expect an interest rate of about 0.5% to 0.75% higher than the current rate on your first home.

There are very specific nuances around how you classify a second home. It may be a vacation home, rental, or investment property. You’ll need to figure out how you want to use it and define it — and your lender will want to know before they approve you.

If you’re purchasing a home in a vacation town, it may not be convenient for you to get to. That’s fine for a weekend trip or a vacation, but what do you do when the fridge starts leaking and you’re two hours away? 

It’s important to remember that maintenance has to be addressed, whether or not you’re nearby.

If you plan on renting the home out when you aren’t there, you should expect to pay between 25–30% for property management fees if you’re doing short-term rentals. 

You can save that money by managing it yourself, but that can become a significant use of your time.

Houses in a suburb or a city may not see the same wear and tear as a home near the water. If your dream second home is right by the beach, keep in mind that you should expect to pay more to maintain the exterior of your home. 

Saltwater and wind can cause significant damage over time.

Don’t factor in rental income until you’ve checked all of the regulations within your community to make sure you can actually rent your home and how often you can rent it. 

You don’t want to be the person who buys a second home, contingent on listing it as a short-term rental, only to find out that the HOA doesn’t allow rentals.

Vacation homes rented out more than 14 days a year are subject to different taxes by the IRS, and you can say goodbye to the mortgage interest tax deduction on that property. But the advantage is you can write off expenses and claim losses on a rental.

Most lenders want to see 20% or more as a down payment on a vacation home, which means you’re tying up significant cash in an illiquid asset. You hope it will appreciate — but that’s never a given.

If you don’t have the cash for a vacation home or rental property but are in the market, you could leverage the equity from your primary residence to buy your second. 

You can use a home equity line of credit (HELOC) or a cash-out refinance to free up the necessary cash.

Depending on how you plan on using the home and your location and proximity to water, your insurance will look different and perhaps cost more. 

You may need an umbrella policy, flood insurance, or other products that weren’t necessary for your primary residence.

Remember how much it costs to furnish your home? Are you ready to do that all over again? From dishware to bath mats to the big things like sofas and chairs, you’ll have to furnish the entire home to make it comfortable for yourself and your guests.

If you’re not nearby, someone will have to cut the grass — or you could end up on the wrong side of the neighbors. This is another expense you might not consider when dreaming of that weekend getaway.

A rental property can be an excellent way to bring in additional income, but it’s important to understand the work that goes into it or, alternatively, the cost of property management. 

Make sure to run the numbers with a full understanding of the time, taxes, and upkeep — you might find out that the extra $400 a month disappears in the blink of an eye, and you’re paying to run your rental property.