People often use the phrases “second home” and “investment property” correspondently to label a property where they do not reside primarily. However, there are a few key differences between both the terms.
An investment property can be defined as a property that is not your primary residence and the purpose of purchasing it is to generate earnings or to obtain specific tax benefits.
Essentially, if you purchase real estate in order to generate profit rather than because you have intentions of living there with your family, the property is referred to as an investment property.
There are many various types of investment property such as:
- commercial estate
- residential rental estate
- houses purchased for flipping
Loans for investment property generally have a greater interest rate and involve a higher down payment as compared to “second homes”
A property is labeled as a second home if you have the intention of living there along with your main residence for a certain time throughout the year. Generally, the purpose of a second home is to act as a vacation home. However, it can also be a real estate that you pay a visit to frequently. For example, an apartment in a city you frequently visit for business or any other reason. A lot of the times, it is required for the residence to be on a vacation or resort area or a bit far away from your main residence to get qualified for a second-home loan.
A second home loan generally has a lower interest rate as compared to an investment property loan and may also accompany a Second Home Rider with mortgage.
It is generally a good idea to hire a property manager for your second home because of the various challenges that come with property ownership.
Written by Scott Esmail