The difference is subtle, but there is a difference between a property you buy as an investment and one you use as a second home. The consequences for thinking you have one when it’s really the other can be significant. Take a look at some of the differences and similarities you need to be aware of before you buy.

Break It Down: Which is Which?

A second home is usually a single-family dwelling where you spend a fair amount of time when not at your full-time home. It’s outside the immediate area where you live most of the year. You might even call your second home your vacation home. Maybe you want a vacation home because you don’t want to pay for hotels and going out to eat in restaurants when you’re on vacation. You found a home for sale in a location where you often spend vacation time, so why not?

An investment property is strictly for investing. It could, in theory, be a home you could see yourself purchasing for your family to vacation in, or it could be a multifamily dwelling right across the street from where you live now. A second home is required to be a distance from where you live, but an investment property can literally be as close or as far away as you wish. Its only purpose is to help you increase your wealth.

Differences Between a Second Home and an Investment

There are different financial reasons for buying a second home versus investing in a property. Homes for sale in Baton Rouge may fall under a separate tax structure than somewhere else in the country, but the overall financial picture is basically the same. A second home is for fun. An investment property is to make money.

You may be allowed to write off at least a percentage of the mortgage interest with your second home that you can’t with your investment property. You probably will not be able to write off any improvements in your second home. You will probably be able to write off renovations, upkeep, depreciation, and operating expenses for the apartment house you purchased for investment.

Similarities Between the Two

There are similar aspects to either choice. Your interest rate will most likely be more than you’re used to paying for the home you live in most of the year whether you choose the second home or investment property. The down payment on either will also likely be more than your main home. Lenders usually feel like you will place more importance on the primary roof over your head if it ever comes down to you having to choose which mortgage to pay. Any additional purchase after your primary home will have more of a chance to default or fall behind in payments.

It all comes down to what you want more. An investment property may be more to your liking if your interests lie in building your income. A family that enjoys frequent vacations may decide on a second home where you can share adventures and make memories.