It is a common mistake among Los Angeles Investors to interchange the usage of “second home” and “investment property”. We usually refer the two with a real property which is not their residence primarily. Yet in the strict rules of the real estate market, these two terms differ.
This is a type of real estate property that you purchased in order to generate income and not considering this as your primary home. This could gain such through renting, appreciation profit and even in certain tax benefits. This could either be a property for residential rental, commercial property and a property used to flip.
Properties for residential rental are those property that one purchases in order to make it available for rent. Such properties may be a house, a condominium, an apartment, and even a dormitory. Commercial properties are those that are strategically located in places to convey a good marketing atmosphere. Such properties could be an empty lot, a vacant building and even furnished buildings for offices and other commercial usage. The properties used to flip are such properties that are bought with a plan to resell it in the far future. Since these properties generate income to the owner, this has different sets of taxes and responsibilities. We buy houses in Austin Tx, because we know that we will generate a significant more amount of cash flow and tax savings by creating the cash flow, versus just living in the house. In this light, the loans for investment properties are generally higher interests than those with other loans and they need a larger amount of money for down payment in addition.
A second home is a house that you consider as your second home. Literally this is the owner’s second home. In Los Angeles, California, these houses are occupied secondarily with another main house which is the primary residence of the owner. Usually second homes are used as vacation homes in LA or for your retirement home. Such properties may be regularly visited or not. This house can be maintained regularly or you could just leave it as is. That is the decision of the owner.
Most often, for a person to be qualified for a loan application for the second home, the target property needs to be situated in vacation areas, this includes nearby beaches, mountains and other places close to nature. The second home should also be in places that are quite distant from the creditor’s primary home.
Since the property is not an income generating one, these are given with lower interest rates as compared with the investment properties. Additionally, this will also have a second home rider together with the mortgage. The said rider usually states the following:
Second-Home Loan versus Investment Property Loan
A lot of lenders in California & Texas will not be offering a loan for second-home if there is an intention from the borrowers to have the property for rent in any period of time. As an example, one may qualify for the loan, if they plan to live there during vacation, summer and holidays, given that they will not rent it out at any time.
On the other side of the story, the investment property loan will be appropriate once you have plans to reside on this property on breaks and plans to have in for rent at any time of the year.
Once you are considering this options, make sure that you have properly decided as to what will be your investment, should it be just a second home or an investment property?