What is an alternative investment real estate versus vacation home…?

Mortgages on vacation properties have harder terms—and more expensive to own than a primary residence.

Is your vacation home an investment property? Homeowner would need to consider and calculate

Cost of the mortgage
Insurance
Taxes
Maintenance & Repair

Lender’s requirement are higher down payment and at least 50 basis point on the second home comparing with your primary home.

In addition, lender would calculate your debt-to-income (“DTI”) against the borrower when they apply for another mortgage. Under current federal laws, a borrower’s DTI must be 43% or lower to qualify for most mortgages. This DTI percentage measures the borrower’s overall monthly debt payments relative to income—the lower the debt, the better.

In fact, many lender also calculate the vacancy rates, roughly from 25 to 30% of the year.

Borrower may have to research for lender who are non-traditional lenders for the investment-home market who would willing providing 30-year, fixed-rate mortgage specifically developed for landlords who cannot qualify for loans from traditional lenders.

In general these lenders term at higher interest rate and loan-to-value (“LTV”) is approximately 75% the property’s appraised value. Please note the minimum credit score is 650.

The rental income covers mortgage payments and still enjoy the property for some personal use.

Here are some consideration for using a vacation home for rental:

Documentation & Paperwork. Borrowers hoping to qualify for an investment loan can expect lenders to ask for proof of ongoing occupancy, such as a copy of the lease and evidence that a security deposit was collected

Higher taxes. Non-primary residences aren’t eligible for homestead exemptions on local property taxes. Mortgage interest on investment homes isn’t deductible for federal income tax purposes.

States and local municipalities require vacation-property owners to collect and pay the same lodging taxes as hotels and charge stiff penalties to nonpayers.

Maintenance & Repair. Maintenance and insurance costs will have higher rates than homeowner’s policies. Vacation rentals also require cleaning and marketing, which can be handled by a real-estate management company—at an additional cost.

Alternative, net lease commercial real estate (“NNN CRE”) investment is a long term, secured by real estate, low risk, reasonable yield and fixed income. You may not need to factor a maintenance and repair if you know how to select a right net lease property.

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