Is Buying a Second Home Right for You?

The idea of owning a second home can be incredibly appealing. It could be a holiday house or an investment property that can generate additional income. But is buying a second home the right decision for you? Let’s explore the key considerations and steps involved in purchasing a second property in Australia.

Top Reasons for Buying a Second Home

There are several compelling reasons people choose to buy a second home. Explore these reasons and assess whether you share the same motivations:

Investment Potential

Investing in a second property can be lucrative, providing rental income and potential capital growth. That’s especially true if you’re already familiar with buying and owning a home. Still, there are multiple critical factors to consider. One of which is the expected rental return or yield. You can determine that figure by comparing your overall costs with the expected rental income. So, you must find a second property that fits your budget and is in an area with high tenant demand. 

Holiday Retreat

Owning a holiday home in a favourite location offers a personal getaway and the opportunity to rent it out when not in use. However, note that you’ll be responsible for maintaining the costs of two mortgages, particularly when the property isn’t generating rental income.

When choosing a location for your holiday home, think about the distance from your primary residence. If it’s a considerable distance away, managing the property and ensuring regular checks for potential damages will be crucial. You should also consider the area’s potential for growth and development and ensure it’s a location you’ll enjoy visiting regularly, as this is likely to be a long-term property.

Future Security

A second home can be a future residence for your retirement years or as a home for family members. It’s also a good move to buy a second home in another state if your lifestyle requires you to travel to that state frequently. More importantly, unlike stocks, bonds or other assets, a second home is a physical asset you can see, touch, and improve upon. Its intrinsic value can provide a sense of security and stability.

Diversification

Investing in another property can diversify your investment portfolio, spreading risk across different asset classes. However, applying this strategy requires careful consideration of property types and their potential capital growth & rental yield. That way, you can project how much risk you accept when buying a second home. 

What to Do Before Buying a Second Home

Before taking the plunge, it’s essential to do your homework. Here are some tasks to do or things to know before buying a second home:

• Assess Your Financial Situation: Understand your current financial position, including your income, expenses, and existing mortgage commitments, to assess whether buying a second home is the right decision. While it may seem promising in theory, the actual outcome could be quite different. Buying another property with the expectation of making a profit could result in more debts rather than improve your financial situation.
• Determine Your Goals: Clarify why you want to buy a second home and what you hope to achieve. Are you after rental income, capital growth, or a personal retreat? How much additional income or profit do you expect from the second property? Your answer to these questions will help you figure out if it’s a worthwhile purchase and pinpoint the type of property you must buy. 
• Research the Market: Investigate property markets in different areas to find locations with strong growth potential and rental demand. For instance, explore the best suburbs in Tasmania to invest in; Rosny offers a picturesque view and promising capital growth, while Launceston features prime real estate. Don’t skip Hobart, too. Buying a house in Hobart means owning a piece of one of Australia’s hidden gems in property investment. 
• Calculate Costs: It’s more than just dealing with another set of monthly repayments or paying off a bridging loan. Consider all costs involved in buying a second home. These include the purchase price, stamp duty, legal fees, maintenance, insurance, and property management.

How to Finance Your Second Home

Now that you know why and when to buy a second home, let’s move on to how to fund it. You can finance a second home through the following methods:

Buying a Second Property Using Equity

Buying a second house without selling the first? If you have built up equity in your current home, you can use it to finance your second property. Here’s how:

• Home Equity Loan: A home equity loan is essentially a second mortgage. You can borrow against your equity with potentially a fixed interest rate and term. Expect to pay off additional repayments on top of your first home’s loan repayments. 
• Home Equity Line of Credit (HELOC): Access a revolving line of credit based on your equity and draw funds as needed. This flexibility can be beneficial if you aren’t sure how much you will need to fund the second home. 
• Cash-Out Refinance: Refinance your existing mortgage for a larger amount and take the difference in cash. Cash-out refinancing is an incredible option if you have substantial usable equity in your first home. You can get a huge sum, which you can use to buy a second home outright or pay for a deposit.

Getting a Bridging Loan

Want to buy a second house and plan to sell the first home eventually? Consider a bridging loan. It is a short-term loan that covers the gap between buying a new property and selling your current one. Here’s a quick rundown of the benefits of bridging loans in Australia: 

• Flexibility in timing: A bridging loan enables you to purchase a new property before selling your existing one, giving you more flexibility and reducing the pressure to sell quickly.
• Avoid rental costs: You can avoid the need to move into temporary rental accommodation between selling your old home and buying a new one.
• Take advantage of market opportunities: Bridging finance enables you to act quickly on desirable properties without waiting for your current home to sell.
• Potentially higher sale price: By not rushing the sale of your existing property, you may achieve a better selling price.
• Short-term financing: Bridging loans are typically repaid for six to 12 months, designed to cover the gap between purchase and sale.
• Interest-only payments: Worried about bridge financing rates? Don’t be. Many bridging loans offer interest-only repayments during the bridging period, reducing the financial burden of buying a second home.
• Avoid conditional offers: With bridging finance, you can make unconditional offers on properties, potentially giving you an advantage in negotiations.

How Deltos Finance Can Help

Buying a second home is a huge undertaking, so you need all the help you can get.  Our expert mortgage brokers are ready to guide you. We specialise in helping homeowners leverage their equity and find the best financing options for their needs. With one of the highest home loan approval rates in Australia, Deltos Finance is your trusted partner in getting your second home with the right financing. Contact us today to explore how we can help you secure the perfect mortgage product.