Dollars and sense
Financial Facts.BY BOB KIEBER
Here in the High Country we have a lot of very expensive homes. Expensive primary homes and expensive second homes are all over our mountain communities. Some are used quite frequently and others will sit idle for months at a time and then be used for a week or two. So which usage makes more sense?If the second home was purchased and financed as a second home, the mortgage interest rate was mostly likely a .25 to .5 percent lower than if it was purchased as an investment property. The reason for this is simple; an investment property will receive more usage than a second home – and generally also receive more abuse. An investment property purchased is an investment. The owner is looking to rent out the property to cover all the homes expenses, be able to depreciate it at tax time and never plans to spend even one night in that property. On the other hand, a second home is one where the owner plans to use it as just that, a second home. Friends and family may get access to the property, too. At tax time the owner may be eligible to deduct the mortgage interest that was paid during the previous year just like an investment property.
Here is where some people have more money than sense. They invest in a second home, but they never rent out the property. Not one night is rented out. It makes little-to-no sense to me why some properties sit idle and a negative asset. Renting out the property for a few nights can turn that negative into a positive. And if the mortgage was for a second home, the mortgage investor is not going to scream just because the home is rented out a few nights.By renting out the home, the owner can now increase the amount of costs associated with the home, such as a homeowners’ association fee, phone bills and maybe even the travel costs to check on the property. This can be a real plus, especially if the owner lives beyond the Front Range.If you own a second home and want to increase your tax liability, reduce your overall monthly expense for the property and maybe even put a few dollars in your pocket; I recommend that you set up an appointment with your tax professional as soon as possible.
I always suggest that the involvement of a competent tax professional be part of the evaluation process to determine if renting out the property is worth the cost. If you have a lot of money, maybe it makes sense to let the property sit idle. But if the second home would be even more pleasurable knowing that your costs have been reduced, look into renting it out.For answers to your mortgage related questions, call BOB KIEBER at (970) 262-1199 or e-mail him at email@example.com. Bob is a local mortgage banker and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.
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