Are you looking to buy an investment home as a part of your retirement or business strategy? We know that process can be stressful, as a Black Southern Belle and rental property owner, I want to make that easier for you. Today we have somes tips from Jacob @DollarDiligence Make sure to follow him on Twitter for more personal finance content and advice. Get his take on5 Ways to Save For and Make Money from a 2nd Home below:
For the people who manage to scrimp and save, buying a second home is their ticket to a secure retirement. If you’re among the hundreds of thousands of homeowners looking to expand their footprint each year, here are ways you can save the money you need for the second home of your dream.
Most second home buyers use financing for the purchase. If you’re intent is to finance, you will need to determine how much of an additional mortgage you can afford and how much you will need for a down payment.
The next step is to calculate how much you need to save each month towards your goal. For example, if your goal is to save enough for a $20,000 down payment in 5 years, you will need to save about $310 a month if investing in a bank CD. If you are willing to take a more aggressive approach by investing in stock mutual funds and earn an average annual return of 6%, you could save as little as $250 per month. So, the question becomes where to find the money to save each month.
Establish a Realistic Budget
Most families can find $300 in their monthly budget simply by cutting out some non-essential spending and becoming more cost conscious with essential spending. For example, which is more important to you, buying your second home or having 1,200 cable channels?
There are so many low cost viewing options today that spending more than $50 a month to watch TV is considered excessive. Dining out less, packing lunches, buying fewer new clothes and driving less are all tolerable ways to cut back on non-essential spending. What about paying down other types of debt before purchasing a second home? For example, is paying down your old student debt or credit card debt more important? You should consider your entire financial situation in your budget. It is all about opportunity cost.
The key is to set your monthly savings goal and make that your first expenditure of the month. The best approach is to have your required monthly savings automatically deducted from your checking account.
Get a Side Gig
In the digital age there are dozens of ways any individual could pick up some side cash with just a few hours a month. If $200 is all you need, you could pick that up easily with some freelance work.
Go to freelance websites like 99Designs and iFreelance to find thousands of job postings and find those that match your interests and skills. Or, you could monetize a hobby, making just enough money from something you love to do. Anyone with a goal and the desire to make it happen can find an extra $300 to $500 working an extra 10 to 20 hours a month.
Downsize Your Life
Somewhat along the lines of prioritizing your spending, you could make an even bigger dent in your savings goal by downsizing your lifestyle.
With an eye toward spending more time in your second home at some point, why not scale back your current living needs by moving into a smaller home? Do you really need to be driving in two financed vehicles? Instead of buying a new car every three or four years, stretch it out to seven or eight years.
Is your annual vacation more important to having a second home? Plan stayactions and use the extra money to upgrade the location of your second home to make it vacation-worthy.
Making Money with Your Second Home
Most second homeowners, who are not yet retired, use their second homes as a source of income. If it is located in a desirable travel destination a�� near the water, in the mountains, or near a vacation destination a�� it can generate significant income as a vacation rental.
With the right type of property in the right location, you could consider the possibility of accelerating your second home purchase by using the equity in your primary home. It is not usually recommended that you do that due to the higher risk of foreclosure should things go bad; but, if the vacation rental from your second home can generate sufficient income, it could pay for itself.
Such an arrangement should only be considered with a tax professional (there can be unfavorable tax consequences under certain circumstances) and with a clear eye towards the expense and time of managing the property.1