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My husband Bill and I rented in Cobble Hill for about 5 years before we seriously considered purchasing. Our wishlist was long and there were many different neighborhoods we could see ourselves living in, but nothing really seemed to work, and buying did not seem financially feasible at that moment. We were casually exploring the idea of a second home outside the city, and then I heard about this magical lake that seemed to fit our whole wishlist. Without giving it too much thought or deliberation, we put in an offer and within a few months were proud owners of a money pit, I mean second home….
While we now love our lake house and having a weekend escape, there are many things I wish we would have thought more about before leaping in. I hear from many folks considering a second home before the first, and while it may be a good idea, it’s important to weigh the following:
A second home could make it more challenging for you to buy your first home. The mortgage, taxes, and other expenses related to your second home increase your debt-load and may preclude you from purchasing in a co-op, significantly reducing the housing stock available to you. Co-ops are more prevalent than condos -- especially in Manhattan -- and are generally priced lower, but co-ops have strict requirements about prospective buyers’ financial qualifications. Any additional debt or costs associated with your second home will almost certainly count against you when a co-op is assessing your qualification to purchase.
Another long-term financial factor is your liquidity. Anyone who owns a home knows that unexpected expenses often arise at inopportune times. When assessing your future liquidity needs for a “primary home” purchase, you should factor in your second home’s ongoing carrying costs as well as the “cushion” you need for unexpected expenses.
Property in NYC can be a very lucrative investment, but that is not the case in all markets. Most real estate markets don’t perform nearly as well as the NYC market does over the long term -- if you look at the sales history of some properties outside NYC, current prices might not be much different than 15 years ago. So while the NYC market is pricier than other markets, properties in NYC tend to hold their value and appreciate at fairly consistent rates over time. Secondary home markets are typically far more susceptible to adverse market conditions. While it’s possible to take advantage of such volatility, you could also end up holding the bag, especially if you purchase your second home (as most do) during good times.
A second home can be more than an escape; it can provide you with an income stream, depending on the circumstances. Some properties pay for themselves and then some via short-term rental income. Or you can rent out your second home long-term if you are no longer looking to visit, thus making it a true investment property.
In our personal experience, buying our second home first helped us find the perfect first home. After purchasing our lake house, our apartment search became much more clear and our wish list whittled down: We had always wanted outdoor space at our apartment, but after purchasing the lake house, where we have a lot of outdoor space, we realized we could do without it at our apartment. Storage also became less important to us as we didn’t need to keep all our possessions in an apartment or storage facility. We were able to prioritize the things that actually mattered to us in our day-to-day life. Convenience and commute became the more important factors for us, so we ended up purchasing an apartment in a doorman building that is walking distance to both of our offices.
Buying a second home before a primary residence is a big decision that comes with some risk but can yield great rewards. If you’re interested in this option, I’d love to help you weigh your options and connect you with a great local agent who can provide specific advice and guidance.