SECOND HOME VS. INVESTMENT PROPERTY

Reno and Sparks have become very popular with real estate investors. According to First Centennial Title Company’s most recent Market Condition Report, the median single family home price in the Reno-Sparks market increased 18% over the 13 month period between October 2011 and October 2012. Over the same period, the average sale price increased by 13%. As a result, many investors are moving their money away from stocks and mutual funds into rental homes. At the same time, many people are buying the vacation home they always dreamed about.

What is the difference between a second home and an investment property? A second or vacation home is a property the owner purchases with the intent to use for family purposes. It must be a reasonable distance away from the borrower’s principal residence, typically least 50 miles. The owner must occupy the property for some portion of the year and the property must be suitable for year round occupancy. Only a one-unit property may be purchased for a second home. The home must not be a rental property and therefore, no rental income may be used for qualifying.

A second home is defined as:
• Secondary to his/her principal residence
• Commonly known as a vacation home.
• Located in an area the can reasonably function as a second and suitable for year round occupancy.
• Typically more than fifty miles from the current principal residence and located within a recreational area or is used to minimize commuting problems.
• Second homes must not be subject to any timesharing arrangement or subject to any rental pools or agreements that require the borrower to rent the property or give a management firm control over the occupancy.
• Transactions where the property is being purchased for the occupancy by someone other than the borrower must be purchased and underwritten as an investment property.

An investment property is owned but not occupied by the purchaser. The property is purchased with the intent of renting the property. The owner of the investment property will take any and all tax deductions when filing their tax returns. Deductions for items include management fees, utilities, homeowner’s association fees, maintenance, and real-estate taxes, etc.

• An investment property is defined as any property owned for the purpose of generating income for the owner.
• Property owned for occupancy by someone other than the borrower, must be underwritten as non-owner occupied/investment, whether or not income is generated.

If you are considering the purchase of either an investment property or a vacation home, I am sure you have questions. Please call me @ (775) 828-7006 and we can discuss your situation and answer your questions.

 

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