The Difference Between Second Homes and Investment Properties

When describing property that is not considered a primary residence, the terms “investment property” and “second home” are often used interchangeably. But it’s much more than semantics. There are significant tax and mortgage financing differentiations between the two.

Property Differences

A second home is one that you purchase in addition to your current home – like a vacation property for example – with plans to live in it for part of the year. Second homes are typically considered one-unit properties, and not part of a timeshare. Typically, to qualify for a loan on a second home, it must be within a certain distance of the primary residence.

An investment property is not your primary residence, and it’s purchased to rent for income or flip for a profit. It can be more than one unit – two to four – or it can also be commercial property.

Lending Differences

Both types of properties tend to have stricter lending requirements than a primary residence – including higher interest rates and higher down payments. However, when it comes to interest rates and down payments between a second home and an investment property, loans for second homes usually have lower rates than investment property loans.

Tax Implications

There are some important tax benefit differences between a second home and an investment property as well.
For a second home, you generally cannot write off expenses. For an investment property, you can write off mortgage interest, maintenance, and utility expenses, as well as depreciation.

When it comes to mortgage interest, for a second home, it is tax deductible, along with property taxes and mortgage insurance. For an investment property, it is deducted from rental income as part of your expense write offs.
If you own a second home and rent it less than 14 days out of the year, it’s usually not taxable income. If it’s an investment property, you have to report if the property is rented more than 14 days out of the year.

Financing Options

Lenders typically have higher qualification standards for a second home or investment property mortgage than a primary residence.

Luxury Mortgage offers a line of programs that could be the right solution for second home buyers or investors.
Our Simple Access® Non-QM Investor Cash Flow loan is an excellent solution for real estate investors. Borrowers use rental income generated from the subject property to qualify.

And our Simple Access® Non-QM Full Documentation loan is a financing option for second/vacation home properties that don’t quite fit into traditional qualification methods.

Talk to us about your options

Luxury Mortgage is Non-QM lender who is more than ready to help you buy that vacation home or rental property you’ve had your eye on. Let us help you find the Simple Access® solution that fits your unique income status and financing goals. Connect with one of our licensed mortgage consultants today to find out which loan might be right for you.