Selling a second home can be a great way to make some extra cash, free up equity for other investments, or generate some additional money for making modifications to your primary residence. It’s important, however, to understand just what you’re getting into when selling a second home.
Selling any home comes with some obvious financial windfalls but may also come with some financial downfalls that can be difficult to navigate unless you’re prepared. Here’s our overview of selling your second home and how to execute it properly.
Selling your second home may seem simple on the surface, but it’s important to consider the financial ramifications of doing so. Essentially, selling a second home is a for-profit endeavor and you may be responsible for capital gains tax on the sale of the home.
From an IRS perspective, selling a home is similar to selling stocks or other securities. If you’ve owned the home for less than a year, you’ll likely be subject to short-term capital gains tax, which is taxed the same as your ordinary income. However, if you’ve owned the home for more than a year, you’ll be subject to long-term capital gains tax.
Of course, you’ll also want to consider if you have any outstanding mortgages on the home you’re selling. If you still owe money on the home, you’ll need to pay off the remaining balance before selling the property and get in contact with your lender or loan holder ASAP to make the process as seamless as possible.
Despite some of the negative financial aspects of selling a second home, there are plenty of positive financial windfalls. If you’ve owned the property for a long time, you may have built up significant equity that you can use to make other investments, pay down debt, or put towards a new home purchase.
No matter the case, unless you’ve owned the home in the short term, you’re likely to see a rather significant positive swing in your finances which could give you a great deal of flexibility for your future plans.
Selling Your Second Home
When it comes to the nitty gritty of selling a second home, the process is similar to selling a primary residence. The first step, of course, is to determine the fair market value of the property. This can be done by hiring a real estate agent or using online tools to compare similar properties in the area.
Naturally, you’ll want to do as much prep work as possible for the home sale. Things such as cosmetic or mechanical touch-ups and anything that will add curb appeal are ideal to do before you list. Once you’re ready, get with your real estate professional to chart the best course.
Financing the Sale
Unless you’re an intrepid businessperson or have experience selling homes yourself, you’ll likely want to leave the financial aspects of selling your home to a lender and to the banks. However, it’s important to know what financial instruments are available to you and therefore your buyer to better prepare you for getting your home sold quickly.
In some cases, you may need to use mortgage instruments yourself to finance part of the sale or make needed repairs or renovations to the home prior to the sale. In that case, you may need to consider a cash-out refinance or similar mortgage instrument to give you some extra money while you get the home ready for the market.
Get Help From Professionals
Selling a second home isn’t rocket science necessarily, but you definitely don’t have to do it alone. If you have any questions about selling your second home or if you need some advice from a real estate professional, contact one of the loan experts at Tidewater Mortgage Services, Inc!