Want to buy a second vacation home? Here are some things you should know

Maintenance expenses, property taxes, potential second mortgage are 2nd home realities

While owning a second vacation home may come with its perks, experts say potential homeowners need to be wary of the long-term financial responsibilities of doing so before taking the plunge.

A second property is an investment and, like all investments, it comes with a certain level of risk, according to Edward Woods, mortgage channel manager at First American Bank. 


For one thing, "it's like another line item in their expenses," Woods said. "So they have their primary residence, their automobiles and loans and student loans and credit cards, and now this loan as well."

A home in South Miami, Florida.  (Prestige Realty Group.)

To pay back these loans, consumers rely on cash flow, and in most cases when you have a second home, there's no cash flow associated with it unless it's an investment property, according to Woods. 

It is a "fixed expense that you need to meet whether you have lost your job or you've had a reduction in pay," he said. "So there's definitely some risk from a financial standpoint of being able to keep up with the bills."


As a second homeowner himself, Woods explained how homeowners are also looking for capital appreciation, which is an increase in the price or value of assets over time, on that property so when it comes time to sell, they can make a profit. 

This is never a guarantee, according to Woods, citing the 2008 housing crisis when real estate values plummeted. 

A rental in Snoqualmie Pass, Washington.  (Scott Richards for Realogics Sothebys International Realty)

"My whole hope that when I've used it to my full extent and hit the lake a bunch of times and fished as much as I can fish and it's time to sell, that I make a capital gain on the second home," Woods said.  

In the meantime, the upkeep of these properties won't be cheap either. Homeowners need to factor in the maintenance cost for the home year-round, even when it's not in use, according to Woods. 

"Our Michigan house, we have to heat that whether we like it or not. Otherwise … the pipes will freeze and that's hundreds of dollars per winter," he said. "These are things that, although you don't get to use it, you're still paying for it every single month."

Scott Richards, real estate agent of Realogics Sotheby’s International Realty in Washington state, agreed, adding that maintenance is even more important in extreme climates. 

"Homes need regular care with ongoing maintenance both inside and out, and if sited in an extreme environment like many second homes are—especially mountain or coastal—it is even more important for protecting your investment," Richards told FOX Business. 


The added maintenance expenses in addition to property taxes and potentially a second mortgage are the realities of purchasing another property and in some cases tempt owners to rent out homes to offset those costs, Richards said. 

However, real estate attorney Jenee Ciccarelli, managing partner at Ciccarelli Law, PC, told FOX Business that consumers should be cautious when relying on rental income. 

"Mortgage companies may allow you to obtain a loan with potential income, which means you could over qualify and be forced to rent when it wasn’t really your intention," Ciccarelli said. 

It is equally important, according to Ciccarelli, to understand the average rental amounts in the area and to "have a plan to manage the rental and pay any property management fees." 

A home in South Miami, Florida.  (Prestige Realty Group.)

"Renters, even short term, need support," she said. "The heat isn’t working, the toilet is backed up, they got too rowdy. Who is going to handle that?  Where are you when that is happening?" 

However, some companies will do the heavy lifting for you. 


Tony Rodriguez-Tellaheche, the owner of Prestige Realty Group, told FOX Business that his company will typically take care of the property for their clients "while they are away and work directly with hiring landscapers, pool maintenance, and cleaning staff, in addition to handling the rental of the property." 

The company will also track property taxes each year to make sure they are paid on time. 

"In some instances, we’ve even taken checks in person and paid the property taxes for our clients who were out of the country," he said.