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As with any home, the costs of a second home don’t stop at the mortgage.
There are a lot of costs associated with owning a second home, and you’re responsible for anything that comes up. You’ve probably considered the costs of property taxes and HOA fees for your second home, and factored those things into your budget when deciding how much you can afford to spend on a second home.
But, there are some expenses you may not have thought of that will apply to your second home. Here are three expenses you should consider before making the leap to a second home.
You may need to increase your life insurance and disability insurance coverage
If you haven’t considered how owning a second home could affect your life insurance and disability insurance coverage, you probably should.
Mortgage debt should be factored in when deciding how much life insurance coverage you need. Buying a second home could mean taking on a second mortgage, so you’ll want to make sure that your life insurance coverage is high enough to cover both home payments, if necessary. But, increasing your coverage amount could mean adding to your monthly cost for life insurance.
Similarly, disability insurance can help you pay the bills each month if you become disabled but rely on an income to make ends meet. It can provide a replacement income to pay the bills if you’re ill, injured, or otherwise unable to work. While it’s sometimes offered through your workplace, that coverage often isn’t enough.
“Have enough disability insurance that you can afford to make both payments,” says financial planner Riley Poppy of Ignite Financial Planning in Seattle. With a second home, you may need to increase the amount of coverage your policy provides to make ends meet.
If you’re planning on renting your second home for part of the year, consider the expenses related to that
When it comes to homesharing, it’s not all profit.
Renting out your home will also come with some costs. Writer Caroline Lupini rents her home in Colorado on Airbnb: “There are definitely costs associated with renting my apartment short term, including Airbnb fees, normal upkeep, internet and cable, and hiring someone to clean the place when I’m not in town to do it myself,” Lupini writes for Business Insider.
It’s also worth considering that you may need extra coverage on your homeowners insurance. Most homeowners insurance policies won’t cover short-term renters, according to the National Association of Insurance Commissioners. You may need to increase your coverage or add an extra type of coverage to your current policy, adding to your monthly insurance bill.
Maintaining both your first and second homes will add up
Most financial planners recommend saving between 1% and 4% of a home’s value each year in an account reserved exclusively for emergency home repairs and other surprise expenses. If you’re buying a second property, you’ll need to save in a second account.
Financial planner Jovan Johnson of Piece of Wealth Planning explains that having this second-home emergency fund is even more important for anyone planning to rent out their home. “Having a rental property basically means you’re running a business,” he tells Business Insider. “So you need an emergency fund specifically for that property.”
Like your first home, things can and will go wrong in your second home. Make sure you’re prepared financially ahead of time.
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