For many people, buying a holiday home or a cabin away from the hustle of everyday life is a dream. Their first home is close to the city for work, or in the suburbs so they can raise their children in a safe area with a nearby school. Later in life however, home owners find they want to escape to a lakeside cabin to relax for the weekend.
While it sounds like the perfect way for a getaway every other weekend, purchasing a second piece of real estate means there’s a whole new financial situation to consider.
Can you afford a holiday cabin?
The first step to purchasing a cabin is ensuring you are able to afford what is essentially a second home. You must consider how much owning a second home will cost. While this does include the sale price, there’s a significant amount of additional costs that you must consider.
It’s important that you budget for things such as capital gains tax, insurance, utilities, maintenance and a second mortgage if that’s how you plan to make the purchase. When you own a second home or cabin, having an emergency-type fund solely for the second property, is crucial, be it for unexpected maintenance, or a reserve if your income dries up.
If you’re considering buying a cabin as a second piece of real estate, it’s important that the rest of your finances are in good shape, with low ratio of debt to income.
It’s best to consider this as an investment. This could mean that it’s an initial investment with income from rentals, or an investment that will be sold or used later on. Here’s 4 ways to approach purchasing a cabin.
A second mortgage is the most common way to purchase a second home. Simply put, a second mortgage is taking out a mortgage on a property that is already mortgaged. This works differently to a first mortgage and is more like a line of credit drawn from the equity of the property, which acts as security.
Obtaining a second mortgage is significantly more difficult than a first home loan because of the increased amount of risk for the lender. However, if you can take out a second mortgage, you will be able to access the equity of your first home, which will likely give you enough cash to purchase your cabin.
Another option to fund your cabin purchase is building up enough revenue to make the purchase. While this might be unfeasible for a second home, cabins are often much more affordable. Granted, this will likely take much longer than getting a second mortgage, but if you can take your time and save for a few years, it can be a far less risky option.
There are ways to speed up your saving, but again, this will bring a degree of risk. For example, consider trading on the Forex market. With the right strategies, which you can learn from courses with Learn to Trade you can build up your income. Forex trading is a great strategy as you can begin with any amount of cash.
Again, it’s important that you are sure you can afford trading, have a quality plan implemented and understand the risks involved.
Once you have purchased the property, knowing what you will do with it can help with the affordability. Renting it out can help with, or even cover the mortgage repayments on the property. Many people hesitate at this idea as it means it won’t be available to you until the rental income repays the property, however, if you can wait a few years, this is a financially smart way to pay for a second home.
Alternatively, if you want to use it on the weekends immediately, you can list it one sites like Airbnb or Gumtree to find people to rent it on a holiday type basis. Either way will help you earn income from your property when not in use.
No matter how you afford a cabin, it’s important you know what you should buy. Knowing where to look and what to look for can not only help you find an affordable property but also something that makes sense as an investment. Finding a location that is set to grow in value over the next decade can help you be sure that the money you’re spending isn’t a waste, and instead will leave you with more assets in the future.
Buying a cabin property can be a great investment and a great way to spend your weekends away from your city life. At the same time, a second property is a huge commitment and the financial implications must be considered.