Can we all please agree!? A family trip is not exactly a vacation! I’m sure the thought has crossed the minds of anyone capable of getting away for the winter break. At the same time, there is often a moment during the holidays when you can say to yourself: “that’s life; we should do it more often. And then sometimes it happens…
What New Year’s is to weight loss resolutions, the yeshiva break is to thoughts of buying a vacation home. With the advent of Airbnb, the notion of buying a second home has become increasingly popular in recent years. With a little math and analysis, many are able to quickly assess whether they could have “the best of both worlds” by owning a home for their hobbies that could also generate income to offset their costs. What was once accessible only to the wealthy has now become regular conversation for “the average Joe”.
Technology, coupled with COVID, catapulted the home rental space to where it seemed anyone with a home could enjoy it with minimal inconvenience. But things have changed and continue to change where conventional wisdom might make you reconsider some things. Buying a vacation home is more than doing the math and checking rental offers.
For starters, financing has become more expensive. In addition to skyrocketing mortgage rates in 2022, changes in loan parameters require a whole new assessment. Many bought “second homes” for as little as 5% less, with rates that were the same as buying a home as their primary residence. This is no longer the case. The FHFA, the regulatory body that governs Fannie Mae and Freddie Mac, has imposed excessive fees and additional restrictions for second homes and investment properties.
The premise was, quite rightly, that people bought a “second home” for personal enjoyment and enjoyment. Banks assumed buyers would occupy the homes for themselves rather than seek rental income to justify the purchase. The results of post-closing quality control revealed that most of these second homes are rented, which is riskier and completely inaccurate. In addition, down payment requirements for second homes have increased to compensate for the increased risk for banks. In addition to a higher rate, a larger down payment is required to obtain financing.
For those still considering subletting a second home, I encourage you to approach it entirely as you would an investment property. Run the numbers rigorously and cut out any personal or emotional benefits you might derive from them. Don’t assume that just because you own a home in Miami, Orlando, or whatever, you’ll visit there more often. Assume you won’t because most people don’t. Here’s a little ‘hack’ too – some banks have been so burned by fraudulent ‘second home’ applicants that they actually offer better rates to applicants who apply upfront as investment property.
To become an Airbnb mega-millionaire, it’s not enough to make the numbers work on paper. Markets change, and so do demand and financial considerations. One of the most common conversations I’ve had over the past six months is with those looking to get into rental and investment property – there’s still plenty of opportunity, but you need to arm yourself with the information needed to succeed in this changing landscape. I can help!
As a reminder, if you would like to learn more about the impact of inflation, rate hikes and an impending recession on residential housing and real estate, join my webinar by visiting www.approvedfunding.com/webinar2023.
Shout out and happy birthday to my fellow Capricorns, Chanan Aschendorf, Shimon Betesh, Faigy Eisner, Mully Fein, Adena Goldman, Elliot Goldstein, Chumi Gottlieb, Ari Greene, Doron Hindin, Dena Kaye, Ariella Lasky, Adam Lazaros, Adina Lederer, Yossi Muszkat , Dr. Shulamis Juni-Pollak, Matthew Racer, Nikki Sausen, Yael Schulhof, Dr. Steve Seidel, Rivka Silverman, Linda Stamker and Kobi Zaken
Shmuel Shayowitz (NMLS #19871) is a highly regarded real estate and finance manager, writer, speaker, coach and advisor. He is President and Chief Loan Officer of Approved Funding, a national private mortgage banker and direct lender. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including Certified Mortgage Underwriter, Chartered Realtor, Residential Review Appraiser, and Accredited Investor, to name a few. Shmuel has successfully navigated many ever-changing markets and business landscapes, making his market knowledge and experience a highly coveted experience in the real estate industry. He can be contacted by email at [email protected]
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