For many reasons, the Irvine housing market seems like a perfect place for real estate investors to look for a second home. High quality of life, low unemployment, and a burgeoning tourism sector make Irvine an attractive proposition for second home acquisitions, but prospective buyers must keep in mind that the mortgage and financial landscape has changed in the wake of the Great Recession. Compared to the days prior to 2010, the process of acquiring vacation homes and investment properties has become a little more intricate. Here are some things you should consider when hunting for a second home in Irvine.
Evaluate All Your Finances
If you’ve never sat down with a personal financial planner, this is the perfect time to do so. Make sure you can afford to buy a second home, particularly if you’re already carrying a mortgage and intend to sign another one. Previous financial goals may need to be readjusted, and the costs of maintaining two properties may take up more of your income than you think. There’s also the matter of whether the Irvine listing you’re interested in can qualify as a vacation home or an investment property. This distinction will determine not only the mortgage interest rate but also potential tax implications. You’ll also want to take the time to find a real estate agent in Irvine who knows the market well—you might be able to get a great deal you wouldn’t find on your own.
Pay with Cash if Possible
Whenever there’s an opportunity to settle a real estate closing with cash, you should take it, and this financial axiom applies even more when second homes are involved. The reality of vacation homes is that they often turn out to be more expensive than primary residences when all the costs are added up, but this is something that can be softened when there are enough funds to avoid taking out a mortgage. With primary properties, there are financial incentives related to taking out a mortgage, but this is very rarely the case with second homes.
Understand the Tax Cuts and Jobs Act of 2017
The tax reform package heralded as a major achievement of the Trump administration actually lowered the mortgage interest deduction advantage for owners of second homes in Irvine. While you’re still able to combine the interest of both primary and secondary properties, the limit has been reduced to $10,000. Moreover, if your combined mortgages exceed $750,000, additional interest can no longer be deducted.
Make Sure You Have a Reasonable Exit Plan
Just like with primary properties, second homes should be treated as investments with values that will change according to market conditions and your ability to maintain them. The most common exit scenario for real estate investments is to be able to sell and either cut your losses or take a profit from the equity. In this case, you only need to pay attention to potential resale value, since market conditions for home sales in Irvine are expected to remain favorable well into the next decade, but you should always keep the loan-to-value ratio of your second home at 80 percent. A second home can provide a wonderfully relaxing haven for vacations or a nice bit of extra income from rental revenue. If you’re thinking of buying a second home in Irvine, the knowledgeable professionals at Irvine Residential Living can help you with every step of the process. Call us at 714-454-6304 today to talk to one of our friendly agents.