You hear these terms thrown around all the time: Second home, investment property, vacation home, rental property. But is there any real difference among them? And does it even matter what you call it?
As it turns out, there are some very big differences between second homes and investment properties, especially if you are financing it.
“Both are fantastic ways to build wealth over time by capturing the appreciation of a real asset,” says Tony Julianelle, CEO of Atlas Real Estate in Denver. However, “both come with inherent risks and expenses that should be carefully considered when making a purchase.”
As with any real estate transaction, you’ll want to do your homework and make a smart choice for your wallet, no matter which path you go down. We chatted with experts to get the scoop.
What is a second home?
A second home is just that: a second property where you and your family spend time, away from your primary home. You might also hear a second home referred to as a vacation property. You may rent it out for a few days each year on Airbnb or VRBO, but you primarily use it yourself.
Buying a second home makes financial sense if there’s one particular vacation spot you visit regularly. Why spend a fortune on hotels or Airbnb when you can own your own piece of paradise that will hopefully appreciate in value over time?
“Let’s say you live in San Francisco, but you are an avid skier in the winter and like to hike in the summer,” says Rachel Olsen, a real estate agent in California. “If you spend many weekends and vacations in Lake Tahoe, it may make sense to purchase a second home there.”
What is an investment property?
An investment property, on the other hand, is one that you purchase with the explicit intention of generating income. The investment property could be right next door to your own home, or it could be in another state—it doesn’t really matter. You’ll be playing the role of landlord, with long-term or short-term renters paying cash to stay in the home.
“Never forget that an investment property is all about the Benjamins,” says Lamar Brabham, CEO and founder of financial services firm Noel Taylor Agency. “The entire point is to turn a profit. No emotions, no affection.”
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