“Second Home” Investing strategy

[Sean Lee]

Hello,

Does anyone have experience buying an investment as a “secondary home” or a vacation home as an investing strategy? Buying a secondary home allows for better loan rates and lower down payment but you need to “live” in the home for 12 days or 10% of the rental period in a given year - whichever is greater.

It would great to hear if you’ve personally had success with this strategy.

Thanks in advance!

[Alex Zyskowski]

Hi Sean,

While limited in the number of properties, I have had great success with this strategy. My wife and I bought our 2nd "Investment Property" on a "Second/Vacation Home" mortgage. Our first investment was a condo in the same city we own our primary residence so we had to get an investment mortgage and put 25% down. But the vacation home was out of state so we bought this as a "2nd home" giving us a better interest rate and allowed less down (we still went with 20% to avoid PMI).

We have done very well with Short Term rentals via Airbnb & VRBO however it is definitely due to the property. It is a large cabin with acreage, private beach, located on two lakes in northern Michigan so it has a lot of desirable attributes that allow for it to rent at the rates and frequency in which it does.

It is also A LOT more work than my long-term rental, as I self-manage both and with Short-term rentals (especially popular ones) there is a lot of communication with possible guests, managing check-in/check-out dates, finding/hiring a cleaning and maintenance crew (especially difficult in a rural area), Social Media account (check us out on FB and Insta @twolakeslodgemi) and so on. That said, I would imagine some of these things would be easier (like finding help) or not required (like social media) if you're in a city or more popular destination.

I do not trust a lot of these vacation rental property managers (like evolve) as my experience as an owner and a guest (rented a property on VRBO that did use them) was they take a high % and don't really do as much as I found I could do on my own. Now once i have 5-10 that may be another story.

I am in the process of trying to find and recreate the success I am having at my current rental, but this will be different as I am not longer able to use the "second home" advantages I did the first time around.

Overall, this is a great strategy if you own your first home and are looking to invest in real estate while also being able to enjoy it yourself. I am not familiar with the rule requiring a min # of days spent at the property, but if it is something that other people want to rent, you will have no problem spending time there yourself!!

I'm happy to chat more if you'd like, but hopefully this is a good starting point!

Alex