Right now all you ever hear about is
how the economy is terrible and that this is the worst housing market the country
has seen. It's true it is a buyer's market in New Mexico and across the
country, which is no good to a seller, but if you're a first time house buyer
or you’re looking for a second house or a good rental property, then the time
to buy couldn't be better.
In Albuquerque, Santa Fe, and major
cities throughout the state and U.S., people are buying houses for a fraction
of their original price so if you have the money, there has never been a better
time to invest in your future.
Defining Second Homes and Rental
Properties
Borrowers wishing to purchase a
second home or a rental property or non-owner occupied property will need to
know what classifies homes as such.
· Second Home:
The rule of thumb is that a second home is just that. It is a second residence
that is not their primary home and where a homeowner will spend extensive time
throughout each year and not rent it out. A second home cannot be purchased in
the same city as their primary home and must be at least 55 miles in distance
from their primary residence.
· Rental Property:
A rental property or non-owner occupied property is a property that is within
55 miles of their primary or any property that will be used to generate income
by renting it out. Even if a home owner wishes to buy a home for kids or
parents and not charge them rent if that property is in the same city or less
than 55 miles away, then it is still considered a rental property purchase.
It important to classify it
correctly as the down payment is much higher and the interest rates are much
higher for non-owner occupied properties.
Second Homes and Rentals
People talk highly about having a
second home mainly because they are a great tax deduction and it's always fun
to brag about your vacation home on the water that you only visit once a year.
Yet, it may sit there, collecting dust for 11 months out of the year all for a
simple tax deduction. This may not be the best investment if it does.
Instead, consider a different
strategy for that second home. Rent it out as this is becoming a popular
alternative for people rather than staying in a hotel. Larger groups and
families alike are looking for a vacation house rental on a lake, at the beach,
or in the mountains. All of these places appeal to people while you can make
the most of the other 11 months of the year in terms of getting your mortgage
covered.
Rental Homes aren't as Tax
Deductible
There is just one caveat to making
it into a rental property that you might want to weigh.
If you rent your home out full time,
then it will no longer qualify as a second home. This will make it useless to
Schedule A on your taxes and you will then be forced to claim on Schedule E.
However, there is a way around this
glitch that would allow you to have a rental income as well as a tax deductable
and obviously that is why renting is always the way to go.
For starters, the IRS requires you
to live in the house at least 14 days out of the year or 10% of the days it was
rented, whichever is more. This means that you could purchase a vacation
property and rent it out as a vacation home to whomever is interested and then
stay there for a month-long vacation.
This also allows you to make money
renting, have a nice tax deduction, and enjoy a great vacation spot, making
rental an awesome investment if done correctly.
No comments:
Post a Comment