Are you thinking of buying a second home? Maybe you’re almost done with the mortgage on your current home and are already thinking of other things you can invest your money in before you retire. Or perhaps you’ve saved up enough to buy another house to turn into a rental property. Whatever the reason might be, purchasing a second home should be done even more carefully than when you purchased your first home.

Adding another mortgage on top of your expenses can be a risky move. So before you start looking for homes for sale, here are several factors that you need to consider:

Your reasons for buying a second home

First things first, let’s determine the reasons behind your desire to buy a second home. If you’re thinking of buying another home, your reasons might be any of the following:

1. Vacation home. Many homeowners buy a second home to use as a vacation property. These ‘vacation homes’ consist mainly of properties near scenic areas such as beaches, mountains, lakes, and forests, but might be too far from your place of work or your children’s schools. If you can afford a second home to use as a vacation property, why not? But if buying a second home is cutting it close, you can be better off renting an Airbnb twice or thrice a year instead.

2. Rental home. Say you want a vacation home, but you’ll only be staying there a handful of times a year. If you want to earn passive income when you’re not using the house, why not turn it into a rental property?

Renting out your second home can help make mortgage payments much more manageable. However, keep in mind that there are risks involved that you have to be prepared for, such as:

• Inconsistent rental income
• Damage to property by tenants
• Lawsuits when someone gets injured on your property
• A failing real estate market
• Higher than expected costs

3. House flipping

If you want to buy a house to flip and resell, you have to be ready for all the hard work that it entails. Converting a home takes a lot of careful planning and skillful execution. Apart from that, there are a lot of bumps in the road that requires a significant amount of patience and skill to go over.

4. Future house

A lot of homeowners buy second homes to prepare for retirement. Other times, they buy second homes to give to children or other family members as a gift.

Your financial capacity

Buying a second property is a substantial financial obligation that’s probably even bigger than buying your first home. Here are several factors that you have to consider:

• Your cash reserves. The best way to finance a second home is to buy it entirely in cash, which makes your purchase as risk-free as possible. However, if you don’t have enough money to buy a second home with cash, you should have at least a 20% down payment saved up and enough money to cover other expenses, such as taxes, closing costs, moving, etc.
• Your emergency fund. Do you have an emergency fund that is enough to cover at least three to six months of your living expenses? If not, it’s better to wait before you buy a second home.
• Your cash flow.If you’re not buying the house with cash and you’re still not done with your first mortgage, can you afford to finance a second mortgage? Run the numbers two, three, four times to be entirely sure. Remember that buying a second home is a considerable risk. You don’t want to find yourself in a tough spot in case something happens.

Your time

Do you have the time to do the entire home buying process all over again? And after that, does your schedule allow for the initial renovations and maintenance tasks for your new home? If your future schedule allows for all the responsibilities associated with buying another property, then it might be the right time to do so.

Buying a second home can be both a lifestyle upgrade and a profitable investment at the same time. However, it can also be a huge financial risk, even if you are buying with cash. If you want to make the right decisions, weigh your options thoroughly andneverrush yourself. If you think that it’s not the right time, wait until the opportune moment to buy.