Buying your next property requires some initial financial planning, beginning with establishing a budget. Your first experience investing in land might show you that you’ll need money for a down payment and closing costs, along with cash set aside to cover things such as maintenance and repairs, but the numbers may look very different for you the second time around.
If you’re in the process of wading through properties, these tips from the honest real estate developers at Santa Cruz Properties can help you create a budget for buying your next property.
Assessing What You Need to Save When Investing in Another Property
Another home or property can be more pricey than a first home if it’s being utilized as an investment property. Not only can the purchase price itself be far more if you’re seeking a second property in an in-demand market, but you’ll also likely be required to take care of things including property taxes and homeowner’s insurance.
With any land purchase, you should first figure out what’s in your price range, depending on your current income and debt obligations. In the scenario of purchasing a second home, this budget can help you identify exactly what you have to save.
Property taxes and homeowner’s insurance may be added to your mortgage rate, but if not, it’s best to leave room in your savings budget to pay off those expenses as well as closing costs for the initial year.
Creating Your Budget for Second Home Savings
Once you’ve sorted out what needs to be saved, the next step is coming up with an action plan to save that amount.
First, create your timeline for saving. If you plan to buy another property by retirement and you’re still looking at 10 years ahead of you, you’d have to budget to save $11,328 to $12,828 a year. When broken down month-by-month, you’d be required to save about $1,000 to achieve your goal. If you have five years until retirement, however, you’d have to double that amount.
Going over your regular monthly household budget will be helpful once you’ve confirmed your monthly savings target.
Keep two factors in mind: How much you spend per month and the amount of disposable income you have at the moment to honor your savings once your expenses are taken care of.
Whatever your timeline for saving to purchase a second land may look like, you may already have the extra cash flow in your budget to let you save what you need. If not, you’ll have to reflect on your spending to find out if there’s something you can minimize or get rid of.
The other alternative if you’re unable to limit your expenses any further is raising your income. This could be achieved by taking on more work hours, committing to a part-time job on top of your full-time position, or committing to a side hustle to make more money.
Save Even After You’ve Made Your Purchase
The upfront costs of purchasing a second property aren’t the only thing you need to be prepared to pay for. Cash reserves will be required to handle additional costs of homeownership by the time you’ve signed off on the mortgage. Those costs may include:
- Homeowner’s association fees if those aren’t included in your mortgage
- Property taxes and homeowner’s insurance if those are not escrowed
- Lawn care
- General repairs and maintenance
- Utility bills for the second land
Those costs could add up. And it’d also be in your best interest to have a comfortable emergency fund for bigger expenses like a roof or heating and air system replacement or your homeowner’s insurance deductible if you need to file a claim for damage.
Whatever you’re already saving, you may include these in your savings budget now or wait until you’ve chosen the property to add them in. If you’re waiting until after you make your purchase to set money aside for these additional costs, prioritize that so as to prevent being financially unprepared in the case of an unexpected emergency.
Don’t let the cost of your next land purchase keep you from owning property. Let Santa Cruz Properties help you save and invest wisely.
Speak with us today to start the process of your next land purchase! Find out more about how to establish a budget for your next dream property.