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How do you approach the mortgage on a second home?

A few weeks ago I wrote an article about investing with small capital. In that I already mentioned that we are exploring another option for investing and that is becoming more and more permanent. So a short update for you again. This time I will specifically discuss a mortgage for a second home and the options you have for it.

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What options are there for a mortgage on a second-home?

When researching the possibilities for purchasing a second home, we learned a lot of new things 😉 . But let me start at the beginning. Frank's mother has a property that she would like to sell and we are looking at our options for buying that property from her. Of course we do not do this alone, but with a financial advisor. There is quite a lot to consider when purchasing a second home, or investing in a property where you are not going to live. There are all kinds of other rules in the field of taking out your mortgage and peripheral matters. It is impossible for us to make a sound choice – without in-depth knowledge of the business.

Why invest in a second-property?

Let me start with this first. Why should you invest in a second property? Coincidentally, I watched an episode of Sander en de Kloof yesterday presented by Sander Schimmelpenninck. An episode in which the couple Job and Melanie talk about the 11 e apartment that they have now bought to rent out. You can find all kinds of things about it of course, and many Dutch people do that too, but for me it was mainly about the story behind it. Now I honestly haven't found out if Job and Melanie have a mortgage on their second home. And their third, fourth and so on. But it was interesting.

Their reason for purchasing that second home and all those other properties arose from the fact that they wanted to ensure a good pension for the future. You can do this by taking out pension insurance, but investing in real estate is also a very good alternative. Even if you had to take out a mortgage for a second home. Since I do not have a pension scheme as a self-employed person (they are really almost impossible to pay as a self-employed person), this is an option that we are looking at for ourselves.

It's like this

If you invest in a second home, which you then rent out, the rental income is untaxed. This monthly rental income can therefore be very nice as a supplement to your AOW or your accrued pension. But then, how do you buy such a second home? Do you take out a mortgage for that or are there other options?

It's actually not very difficult. While it can be very difficult to take out a mortgage for your own dream home, where you want to live, taking out a mortgage for a property or a second home that you want to rent out can take place in a completely different way. In the latter case, lenders do not look at your salary (or whether you can pay the mortgage), but at the investment you want to make and the returns that the rental income entails.

Invest-with-your-own-money-and then additionally get a mortgage on a second-home

For example, have you saved some money? Or do you have equity on your house and can you increase your own mortgage to get some extra cash? Then it is simply possible to buy a second home with an additional mortgage with that own money. You can take out a rental mortgage on a house that is going to be rented out. Yes, the interest on a rental mortgage is higher than the interest on your own mortgage. That's right. But because you are going to rent out the house, the proceeds of the rental income should be significantly higher than the interest that you have to pay for the rental mortgage. Depending on the lender, you have to contribute at least 20-30% of your own money. The rest can be arranged through a rental mortgage.

This means that it is possible for many more people to finance a second home, without actually thinking about it. Well, this is what we are currently working on. Now it is just that the purchase of the property from Frank's mother has some other snags, including the WOZ value. The WOZ value is a value that is 'applied' to a building by the municipality. The WOZ value differs per region in the Netherlands, and also depends on the number of m² plot, the contents of the property and the neighborhood in which the property is located. For example, the WOZ value in Rotterdam is different from the WOZ value in Schijndel. For the same type of property.

WOZ-value and the objection to it

In addition, the WOZ value of a property is also measured with similar properties. They therefore do a certain valuation of an existing property, and similar properties then receive a similar WOZ value. While the condition of a property is not really looked at. And therein lies our stumbling block. I'm not afraid of that mortgage on the second house, we'll get it. But the sales value must go towards the WOZ value for the tax authorities. However, we are talking about a building with a lot of overdue maintenance. In addition to purchasing the property, we will therefore have to invest enormously in the future in refurbishing and renovating this property.

Fortunately, we can try to object to the WOZ value. But the objection to the WOZ value does not necessarily have to be granted by the municipality. If that is the case, the purchase price will be too high for us and we will probably not be able to buy the property. Gone retirement 😉 .

So we still have some hurdles to overcome, but all in all, this is again an enormously instructive process. I enjoy learning more about the financial part of investing in a second home and a mortgage on that home. And sometimes, very occasionally, in my head I've already reached the point where I start rearranging. Haha, bizarre of course, because that building is going to be rented out and the decor is not up to us at all 😉 . But still I can't resist.

To be continued!

Ps… is it something you could think about? Taking out a mortgage for a second home to try to 'insure' your future? Or do you think it's too risky? What struck me in any case is that many more 'ordinary people' like Frank and I are also investing in real estate. So it's not that weird.