Now Is the Time for an Investment Property or Second Home

Perhaps you’ve been dreaming of your own Outer Banks beachside cottage or Blue Ridge mountain cabin to retreat to. Or, with Charlotte’s steady growth, you have an eye toward investing in real estate closer to home. If so, 2023 could be a good year to get a mortgage for a second property. 

Mortgage rates are still at historic lows, while demand is as high as ever. Plus, rising rents can help make the purchase worthwhile in terms of a return on your investment. Here’s what to keep in mind if you want to buy an investment property or vacation home this year.

Demand is high

The housing market in Charlotte is white-hot in 2023, according to Zillow. That means increased competition, yes — but competition indicates that properties are in demand, and that can help you secure renters. 

Whether you’re purchasing a single-family home or multi-family unit for the purpose of investment income, or you want a second home to use for family vacations, increased demand can give you an edge when it comes to finding renters as well as resale value. Property ownership during times of high demand can generate added value and income.

Even with rising demand, there are more properties available, according to Mecklenberg County data, making it a buyer’s market. Inventory is up nearly 50%, providing more opportunities to buyers.

Mortgage rates are sliding

Although real estate is still in high demand in the Charlotte area, mortgage rates haven’t cooled as much as some buyers have hoped. If you’re willing to pay today’s mortgage rates (which are still near historic lows, although higher than they’ve been the last few years) you have the opportunity to snap up property. 

Economists and experts expect that mortgage rates will stabilize or even fall in 2023, making it more affordable to buy a second home. Even a drop of one or two percentage points can shave hundreds of dollars off your monthly mortgage payments.

Many successful homeowners and investors take the approach of “date the rate, marry the home.” Mortgage rates are always changing, and if you don’t like your current rate, you can always refinance as soon as rates come down a little.

Rents are rising

Another encouraging factor for vacation-home owners and investors is rising rents. If you have a property to rent out, rising rents can help ensure that your rental income meets or exceeds your mortgage payments. In the Charlotte area, the median rent is $1,950. 

You can use our Mortgage Calculator to see what variables give you a monthly mortgage payment of $1,950 or less. For instance, a property priced at $300,000 with 20% down and a 30-year, fixed-rate mortgage at 5% could cost you just $1,288.37 in monthly principal and interest. With a monthly rental income of $1,950, you’d clear $661.63 per month (before taxes, insurance, and other costs). That could help cover the price of your purchase.

Keep in mind that rates and terms differ for rental properties and vacation homes vs. your primary residence (more on that below). Also note that many down payment programs available for primary residences, such as FHA loans, aren’t applicable to investment properties and vacation homes.

Prices are cooling

Finally, real estate prices in the Charlotte area have slowed their meteoric rise somewhat, providing a little breathing room for investors and homebuyers. The average home price in Charlotte is $515,754, an increase of 10% year over year according to Mecklenburg County data. 

However, it’s important to note that sellers are overall no longer receiving over asking price, as they had been in the recent past. While before, buyers were paying an average of 105% of asking, these days they’re paying 95%.

More importantly, this cooldown still leaves room for growth, according to experts. Buying a second property now gives you the chance to see further appreciation. In fact, county real estate experts expect home prices to stabilize or even decline this year, so it’s important to take advantage of real estate opportunities when you can.

Other considerations

The intended purpose of your second property will determine your mortgage rates and tax implications. Mortgage rates are typically higher on second homes. Taxes may differ, too, along with your possible deductions.

If you intend to use the second home as a vacation home, occasionally renting it out to others, generally you can still deduct your mortgage interest on your taxes, according to the IRS. But be aware that you must occupy the property for at least 14 days a year (or 10% of the number of days you rent it) for it to be considered qualified residence interest

If you’re using the property strictly for rental income, consult your tax advisor on what expenses are deductible. Your potential deductions may be able to make the purchase more affordable as well.

Fairway can help

There’s a lot of chatter about the real estate market in these times of uncertainty. But don’t let rumors and fear prevent you from buying a second property when the time is right. With expert guidance and smart decision-making, you could enjoy the benefits of a second property this year—and save money, too. 

Ready to find out your rate? Contact the mortgage experts at Fairway Mortgage of the Carolinas today, or get started online. We’re here to help!