Financing for 2nd home

[GIMD]

I think many rent out a second home as a rationalization to help them feel less guilty for indulging in an unnecessary consumption item.

You have a rather pessimistic view of a 2nd home and your wife does not seem interested so I'm not sure it will happen.
We wanted a vacation home near the beach with warm weather year round where we can plant tropical fruit trees in our back yard. We have a newborn so we won't have time nor need for it for at least another 5 yrs but bought one to take advantage of the low interest rate and rented it out. Broke even after paying all expenses and 15 yr mortgage. I think there are many reasons and many ways to do it that may make sense. Real estate is very flexible.

[Tangler]

You have a rather pessimistic view of a 2nd home and your wife does not seem interested so I'm not sure it will happen.
We wanted a vacation home near the beach with warm weather year round where we can plant tropical fruit trees in our back yard. We have a newborn so we won't have time nor need for it for at least another 5 yrs but bought one to take advantage of the low interest rate and rented it out. Broke even after paying all expenses and 15 yr mortgage. I think there are many reasons and many ways to do it that may make sense. Real estate is very flexible.

Congratulations! That sounds wonderful!

Citrus trees! Magical! I would love that.

Second home: by definition it is a second house and thus not essential.

Am i pessimistic or conservative and careful?

You might be right, but RE is a very inefficient market and docs (in my opinion) are frequently at an informational disadvantage.

There will be winners and losers in inefficient markets.

Coastal RE has a lot of variables.

Second home.

We can disagree with wether it is an investment and/or a luxury consumption item.

It sounds like you did really well.

You might be better at this than I am.

I live near Boston and I am looking at Cape cod.

Love it! 1.5 hour drive. Great fishing!

Homes i like are around 400-700k.

If I buy for example, a 500k house, how much rental per year (month) would i need for it to be a good investment?

What cap rate is acceptable?

My hard core RE buddy (in Florida, 20+ rentals uses a cap rate (R) of 8-10% for good “investments”.

If the desired investment cap rate (R) of 10% (what my RE investment buddy uses) how much monthly and yearly net operating income (NOI) would I need for it to be a “great/good” investment?

Value = NOI/R

therefore NOI = value x R

Value = 500k, I would need a NOI (net operating income) of 50k per year or $4,167 per month.

Is that possible? reasonable? likely?

Perhaps but the NOI by definition is minus vacancies, expenses, utilities, repairs, and management costs.

I imagine some crush it and some don’t.

I am a very simple average doc and I don’t think of myself as special or talented so i will probably just assume the worst and proceed with caution.

My wife says: “you can rent a lot of beach houses for 500k……”

I say, “yeah honey but……i could keep my stuff here and plant trees and build a green house and retire here……she rolls her eyes…..one house, one spouse…..blah blah”

She did say: “maybe…..one day…”
when i showed her an awesome one, but she might have just felt sorry for me.