For those in the financial position to do so, a second home can be a great investment, but there are serious issues to consider before taking the next step. Here, the real estate law and estate planning experts at SLH detail considerations you should make before choosing to purchase a second home.
What is the Main Purpose of the Second Home?
It is important to determine why you are purchasing a second home: is it to be used mostly as a vacation home, or as a source of additional rent-based income? For most second homes to be financially feasible, it will have to be rented out for at least part of the year. Considering this, there are many additional expenses that come with the purchase including utilities, maintenance, repairs, yard work and Homeowner’s Association (HOA) fees, among others. These expenses should be factored in when you decide how you wish the home to be mainly used.
If you decide to regularly rent out you second home, you will have to consider the legal challenges in being a landlord. Screening tenants, understanding and developing leases and short-term agreements, dealing with maintenance and repair issues, complying with landlord law and paying income tax and other taxes on rental income are just some of the considerations one should acknowledge.
How Will It Impact Your Estate Planning?
How a second home will impact your estate planning has much to do with how it is owned. If the property is in your name, and it brings the value of your estate above $5.49 million or $10.98 million for couples, a hefty 40% estate tax can be levied.
If you are concerned about the home remaining in the family, it may be beneficial to create a limited liability company (LLC) through the help of your attorney, which will have a specific set of rules, guidelines and decisions that each member of the LLC must follow concerning the property. This can help prevent disputes in the future, should, for example, one member wishes to sell and another wish to maintain ownership of the property. In the case of legal or financial issues, having the property owned by an LLC protects individual members from liability.
Placing the second home in a trust is another option with which your attorney could assist you. A trust will preserve the property, helping your beneficiaries to avoid disputes about ownership costs and other concerns. The title to the property will be placed in the trust for access by inheritors at a later date.
Where Can I Turn for Assistance?
An attorney experienced in real estate and estate planning law will provide countless benefits to your property acquisition. From explaining legal landlord implications, to preparing deeds and leases, to helping create an LLC or trust for your property, it is critical to consult a knowledgeable professional who will help you make the most out of your property. On behalf of the Maryland estate planning attorneys at SLH Law, we urge you to contact us today.