How Rich Do You Need To Be To Buy a Second Home?
Written by
Cameron Diiorio
Edited by
Cory Dudak
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How rich do you need to be to buy a second home?
This is can be daunting question. To some people, even a first home may seem like a pipe dream. Yet more people are purchasing second homes than you may think — in surprising locations and numbers. Per the National Association of Home Builders, “the total count of second homes was 7.15 million in 2020, accounting for 5.11% of the total housing stock.”
Income is a large factor in whether or not an individual is able to purchase a second home. This decision is one that should be purposeful and well thought out. Is buying a second home right for you? And how does one even go about it?
Who is Buying a Second Home?
“The median household income for home buyers jumped to $107,000 from $88,000 last year,” according to a recent study by the National Association of Realtors. $107,000 is a colossal jump from $88,000, and is an all-time high for average income needed to purchase a home in the American housing market.
A six-figure income is all but required for those looking to purchase a second home, and in today’s market, a six-figure income is essentially required for a first home.
With the average age of first-time buyers being 35 years old and second-time home purchasers being 58 average, it’s not a stretch to say that one must save for at least 20 years until they feel comfortable enough to buy a second house. 58-year-olds are nearing retirement age, presumably looking for vacation homes or second investment properties.
Where are People Buying Second Homes?
Per the National Association of Home Builders, 11.2% of all counties in the U.S. had at least 20% of housing units that were second homes. Although beachfront properties are conventionally popular locations for second homes, lakefront properties have topped 2023’s list.
Savannah, Georgia and Hudson Valley, New York are two of the most popular locations for lakefront second homes in 2023 per Pacaso, a website specializing in helping people purchase secondary homes.
Beyond lakefront or beach properties, suburbs are common places to own second homes. These secondary homes can be used as a way to escape city life, or can easily be rented out for visitors who want to experience the city while not staying in the heart of it. Indeed, second homes are highly desirable in cities with known tourism industries that can easily draw in travelers.
When Buying a Second Home, Ask Yourself — Why Are You Doing This?
Purchasing a second house can be a riskier investment than most people realize, and it takes a lot of work,” said Ramsey Solutions, the blog run by Dave Ramsey’s team. “We’re not discouraging you from doing it — as long as it’s the right decision for you.”
There are many reasons why individuals purchase a second place. Some want to be closer to family. Others are looking for a property to flip and resell. Others still want to use the second home solely for vacation purposes. All of these are legitimate reason to want to buy a home; keep in mind, though, that buying a second home is a big investment. For example, those looking for a vacation home, may find it easier to pay for a rental property each year instead, rather than worry about the maintenance and upkeep costs of the second home.
Those who are unsure as to whether a second home is right for them should consult with a licensed real estate professional to ensure they are making the right decision.
Don’t Pay With Loans
If you do decide to buy a secondary home, there are some essential do’s and don’t’s.
“You should pay for the house and all expenses associated with it (such as closing costs) with cash. You should never take out loans for a second property, even if it’s an investment.” said Ramsey Solutions. “A loan is always a risk. If you take out a mortgage, you’ve added an element of uncertainty in your future.”
Only purchase a second property if you are ready to front the entire cost with cash, according to Ramsey Solutions. This involves budgeting and saving up in order to be ready to purchase the home without any loans that could hold them liable for many years. The key is to not add on any more mortgages that could potentially keep home owners further in debt.
Purchasing a second home requires time, effort and lots of weighing of pros and cons. Individuals should look at their household incomes — and should only consider purchasing a second property if their income is consistently well over six-figures.
This kind of purchase is not for everyone, and one should talk to a real estate agent in order to discern if buying a secondary house is in their best interest. Yet if it is within your means, a second property can be a highly rewarding purchase that can benefit friends, family and the home owners themselves.
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