Mortgaging A Second Property During Covid-19

For close to thirty years, my wife and I have been diligently paying the mortgage on our primary home. There were certainly tough financial times during those thirty years, and I’m honestly amazed that we finally reached the light at the end of the tunnel and paid off our primary home in less than the original mortgage term of 30-years.

This payoff occurred in 2019 and shortly thereafter we were faced by the global crisis surrounding Covid-19. Our initial reaction was to hunker down, save money and carefully monitor our spending. After a year or so of living with Covid-19, we started to consider a different approach.

In July 2020, the average interest rate on a 30-year traditional mortgage hit 2.97%.  Add in that there were more and more homes being sold due to the increase in foreclosures, and we started thinking about taking a completely different financial direction.

Over the last 5-years, we’ve seen a rise in the popularity of Airbnb and VRBO privately rented homes and after a a trip where we stayed in (and paid for) an Airbnb, we started thinking about real estate. More specifically, we started thinking about purchasing a second property as a rental or Airbnb property. We found some really good rental housing resources on-line and decided it was time to run the numbers.

In the early 1990’s when we bought our current home, there weren’t many good tools to calculate what a home will actually cost or more importantly, what home we would be able to afford. Jump forward to 2021, and there are some great tools.

We started with a simple calculator to figure out how much home we would be able to afford. We then compared this to our desire to purchase a second property near a national park or vacation area to see where our second home budget would intersect with home costs in these regions. Not surprisingly, the prices near some national parks were out of our budget, but with Covid-19 pushing the limits for other owners to afford their current vacation houses, there were some bargains that we could afford.

After identifying some likely candidate homes, we compared the mortgage costs with what the average Airbnb rental rates are for that area. The Airbnb rental rates were a bit tricky to average out, but we found a monthly payment calculator that gave us a really accurate baseline for what our fixed mortgage costs would be. This made the comparison much more accurate.

Simply knowing what you can afford and what your monthly costs will be was extremely helpful. We are currently working through what we can expect financially as far as renting our 2nd home and what it will cost to maintain that home as a rental (cleaning, repairs, brokering rentals, accepting payments). We’re also carefully investigating what implications a 2nd home/rental property will have on our yearly income taxes as well as our future vacation costs (assuming we stay in our own second home).

As of now, our research on the purchase of a second home in a vacation area continues. There are a lot of factors to consider in this purchase, but a lot of great available tools to help in the decision. I will update this article as the process continues and as Covid-19 continues to change our real estate environment, but I’m excited to see what will come next.