Second Home vs. Investment Property

If you ever hear someone say they are interested in buying a second home as an investment property, stop them right there. A second home and an investment property are not the same thing. There are several distinctions that set them apart. Let’s take a look.

A second home is just what it sounds like: another location for you to reside at various times of the year. So let’s say you own a home in Needham but you’re interested in buying a winter home in Miami. That falls into the “second home” classification.

An investment property, on the other hand, is intended to generate a return on investment, either through rental income or resale (or both). Examples of investment properties include two-family houses and renovation/flipping projects.

To avoid charges of fraud, your second home should be a considerable distance from your primary residence. The rule of thumb is approximately 50 miles (Wellesley to the Cape, for example, is about 80 or 90 miles.) A two-family second home is unlikely to be approved because it is, by design, intended to be a revenue generating property.

A downpayment on a second home carries less risk and therefore may be the home purchase you can make with the least amount of money down. Your downpayment on an investment property, however, will be higher because the risk is higher. The two-family investment is viewed as a risk by the banks because you’ll be counting on the rent coming in. There’s no guarantee of tenant reliability or year-round occupancy.

I hope this helps clear up any confusion. If you need further clarification, please contact me at 617-965-1236.

Ready to buy a new home or refinance the one you own? Please get in touch and I’ll be happy to answer your questions and help guide you through the process. I look forward to speaking with you.