Buying a second can be a privilege with sufficient income. But if you took out another loan to buy the second home, then there are some drawbacks of buying a second home. The following are some of the drawbacks of buying a second home.
1. A huge amount of debt
When you buy a second home your net worth will increase but it also means that your debt will also increase when financing the purchase of the second home. The amount of debt will affect your credit score and any future credit decisions. This will also lower your chances of securing any additional loans in future, if the creditors see the debt on your credit profile.
2. It will attract property tax
When you buy a second home you should be ready to pay for property taxes. Depending on the value of your home, you should expect to pay several thousands of dollars. You will also be charged as the owner of the property even if you are not residing in the home. In addition to this, you must also pay for maintenance fees.
3. High interest rates
Another drawback of buying a second home is that, you will have to pay higher interest rates than for the first home. This is mainly because, the second home can’t be paid in full until you have paid for the first home. This is also because the second loan is a more riskier for the lender, that is why it will attract very high interest rates.
4. It will attract several deductions and expenses
Owning a second home sounds like a smart investment move, but you must also consider the income and deductions that you will have to pay in order to rent out the second home. The deductions will include, Maintenance fees, mortgage interest, mortgage insurance, paying for bills and utilities, real estate insurance, depreciation value, among others.
5. The value of the home can depreciate
Depending on what purpose you are buying the second home for, if it is rental then you should be ready for value of the home to depreciate, especially if it is run down by the tenants.
The value of the property can also be forced to depreciate by the market forces. For example, if there is an increased number of vacant rental properties, then this means that tenants will have a wider choice and may not necessarily be willing to pay high rental fees for your property.
The market forces also play a major role in determining the rental fees for rental properties and properties for sale. Before you consider buying a second home, you should weigh the benefits and drawbacks and see if it is smart financial move for you to make.