If you're contemplating supplementing your income or crafting your ideal vacation getaway, acquiring a second home can be a highly advantageous venture. In light of historically low interest rates and the advent of virtual property consultations, the real estate market has been buoyant over the recent months, signifying an opportune moment for purchasing.
Distinct Financing Modalities
Though investment properties and secondary residences share similarities in their objectives, their financing mechanisms differ. Given that investors don't occupy their properties, some lending institutions perceive these loans as riskier compared to those for second homes, leading to steeper interest rates and increased down payment prerequisites. Nonetheless, conventional financing remains the mainstay for purchasing both investment properties and second homes. At CrossCountry Mortgage, we offer an array of loan products to cater to your specific, long-term financial aspirations. Let's delve into the contrasting aspects of a second home loan and an investment property loan.
Second Home Parameters
- A minimum down payment of 10%
- Only single-unit properties
- Acceptance of gift funds
- The buyer is required to reside there for a portion of the year (duration varies according to loan conditions)
Investment Property Parameters
- Down payment ranging from 15-25%
- One to four-unit properties permitted
- Gift funds are not accepted
- Possibility of renting out the property
Exploiting Investment Properties through Rentals
Multiple rental approaches are available for investment properties, including long-term leases, short-term agreements, and increasingly popular vacation rentals.
How to Capitalize on Airbnb
As an Airbnb host, you have the freedom to determine your rental fee, taking into account the locality, neighborhood, and amenities. Your rental income could potentially offset your existing mortgage or fund a second home. Hosting is an inclusive opportunity, welcoming all property types. Listing your space is free and registration is straightforward. Hosts are, however, expected to adhere to fundamental guidelines that ensure safety for both themselves and their guests. Upon securing a reservation, a service fee typically amounting to 3-5% of your listed price will be charged. Furthermore, Fundera suggests Airbnb hosts contemplate the following variables which might affect income:
- Discounts for weekly or monthly stays
- Weekend or seasonal price adjustments
- Remuneration for any co-hosts
- VAT in certain non-U.S. jurisdictions Your pricing power remains one of the most attractive features of Airbnb. Prices can be adjusted in response to fluctuations in demand, seasonal changes, local events, or potential additional expenses. Airbnb's "Smart Pricing" tool further empowers hosts to automate price adjustments in alignment with demand variations for similar listings.
Tax Considerations and Potential Income Alterations
If you rent your space for more than 14 days within the calendar year, you're required to report your Airbnb income and expenses to the IRS, mirroring the tax obligations of traditional investment property rentals. In case your annual earnings exceed $20,000 with more than 200 reservations, Airbnb will issue you a Form 1099-K. Hosts from whom Airbnb has withheld taxes will receive an appropriate tax form to ensure accurate income reporting. Additional information can be found here. Your prospective monthly earnings via Airbnb depend on various factors such as your location and the size of your listing, and can be substantially influenced by ongoing circumstances like the prevailing pandemic.
Curious about the loans you may be eligible for? Reach out to a Mortgage Advisor at CrossCountry Mortgage today to discover more.
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