What to Do With Your Home if You Buy a Second Home

Purchasing your second home will bring different challenges than your decision to buy your first, and they are each worthy of careful consideration. Today, we are sharing our view on a question we are frequently asked: “What should we plan to do with our first home if we are buying a second? Should we rent it out? Sell it? Hand it over to a property management company?”

Before you can settle on the answer that is best for your unique situation, you will have to weigh your current financial situation, your capacity to take on added mental and emotional strain, and how holding on to two properties will affect your long-term goals. While selling one home and buying another can be a lot to juggle at once, deciding to rent out your first home is likewise complex and can take up more of your time than you may expect.

Read on to learn how we may counsel you should you bring this conundrum to one of our real estate agents.

What is Your Current Financial Situation?

Do you need access to an influx of capital to afford to buy the home of your dreams? Selling your first home may be the simplest, most direct move to achieve your dream. Your home is likely your single largest asset, and indeed you may find that there is no other workable way to climb the real estate ladder.

However, if you can afford your next home without parting with the first, you may prefer to take this opportunity to lock in your existing property as an ongoing revenue stream. This is especially true because real estate becomes more costly nearly without fail as time goes on; you may not be able to snag a property of equal value to your first home in 5, 10, or 15 years. Hedge your bets against inflation by keeping what you have worked so hard to earn.

Before you can decide whether you want to become a landlord, though, you should understand and analyze the impact each choice would make on your taxes. Make sure that the price you could achieve through renting will cover your mortgage, interest as it accrues, property taxes, and maintenance costs, all while leaving you with a profit that makes it all worthwhile.

Emotional Considerations

It is essential for you to think about your emotional connection (and your family’s if applicable) to your current home. While it may feel like retaining your first home as a rental will make it easier to cope with moving away and leaving such a sentimental space behind, it is equally possible that seeing tenants pass through, especially those who are less than kind to your house, will instead be a constant source of stress and frustration—even sadness.

The only way to know whether you are likely to enjoy being the owner of a rental property is to think about how much it would bother you to have to deal with damage caused by tenants neglecting or mistreating it. If you assume it will occur, and you aren’t terribly concerned about anything other than the inconvenience and cost incurred, it’s safe to say you have what it takes to succeed as a landlord.

If the idea makes you quite upset, it’s better to let your first home go, and hope that the people who are the next owners love it just as much as you do.

Freedom, Fresh Starts, and Future Plans

Divorcées, families and individuals who are recovering from grief, and anyone who wants a fresh start may benefit from selling and moving away from their home. If this sounds like your situation, discuss your feelings with trusted friends, your therapist, and anyone else whose opinion you value highly. Ultimately, though, only you can decide if selling is the best choice for you.

Or perhaps you need to be free to move around the country or globe on short notice due to a new job. If so, you may wish to rent out your current home and move into a smaller rental until your life situation changes. If you want to move back into your home in the future, it’s best to hang onto it; the cost of entry will only get higher from here.

One other emotional consideration is the increased stress, day-to-day involvement, and financial complications that will arise from being a landlord. If you are already stretched too thin daily, it is best to either sell right away, or hand over the management to a well-respected company. Not everyone enjoys being a landlord, and there is no shame in being unwilling to take on such a large responsibility on your own.

The Potential Downsides of Selling

While the housing market is a robust investment over time, it is also true that the market can display marked variance in the short term. If you decide to purchase a larger or more costly home during a temporary market downturn, you will benefit by paying less for the upgrade. But by the same token, you will lose out on potential profit you could otherwise gain upon the sale of your current home.

Even under the best conditions, there is no guarantee that you will be able to sell your home promptly. We always hope for the best outcomes, but it is important to account for factors that may be beyond your control and ours.

Depending on the location of your first home and how long you have owned it, you may have to pay capital gains taxes. Be sure to factor this into your profit calculations, because it may be a large enough sum to deter you, at least for now.

The Takeaway          

We have only scratched the surface of the many considerations each homeowner should make when they decide to purchase a second home. For recommendations tailored to your situation, please contact your agent. We look forward to helping you take the step that will bring you closer to your real estate and financial goals.