Can't Afford San Francisco? Buy Your Second Home First

1685 East Avenida Olancha , Palm Springs, listed by Compass agent Jeff Blacker at $684,900.

1685 East Avenida Olancha, Palm Springs, listed by Compass agent Jeff Blacker at $684,900.

Let’s just be honest: The San Francisco housing market is expensive. With the median home value (not to be confused with the median home price, which is surely higher) at $1.1 million, even an entry-level purchase can require a hefty down payment.

So what do you do if you want to get in the game, but you don’t have the means to dive into our competitive market? It may sound counterintuitive, but you may want to consider purchasing property elsewhere first.

I speak from experience. My husband and I bought our first property in Lexington, KY, and used it as investment property. The income from rent covered the mortgage payments and maintenance costs. When the renters moved out a few years later, we sold, and leveraged the gains from that sale plus additional savings we had accrued along the way to come up with the down payment we needed to buy our current home in Noe Valley.

Before you rush out and buy, first ask yourself: Are you buying a property strictly as an investment, or are you looking for a place to get away on weekends and vacations?

Buying a vacation home

If you’re looking for yourself, make sure you’re picking a destination that you love, and that getting there isn’t onerous. I can’t tell you the number of times I’ve gone on vacation and fallen so in love with the destination I’ve been tempted to buy property.

For example, I love New Orleans, and would love to own there, but realistically I wouldn’t invest in the 5-hour flight more than maybe once a year, whereas I might fly to Palm Springs for several quicker trips, or take the relatively short drive to the Sonoma Coast or the Sierras on any given weekend. You want to get the most out of your investment.

Within any given destination, just as in San Francisco, location matters. If you’re going to rely on part-time rentals to defray the mortgage, do the research and make sure you’re buying in a place that’s going to get you the return you want. Is it close to the action? Is it too close to action? Spend some time casing out AirBnB and vacation rental sites to see where the most desirable areas are, and narrow your focus there.

Considering you’ll be remote from your property, you’ll probably want to engage with a property management company, so factor that into your costs. Also, keep in mind that maintenance costs are inevitable, so budget accordingly.

Even if it’s not technically your second home, non-primary residences have different tax implications that primary homes. Consult your tax professional for the most accurate information.

Buying investment property

If your only objective is to buy property to rent, the factors are somewhat different. Rather than focusing on a place you want to visit again and again, shift your focus to locations where the full-time rental market is more likely to support the cost of the property. I mentioned before that I wouldn’t buy in New Orleans for myself, but I would certainly consider it for an investment property.

Check out multi-unit buildings. You tend to get more bang for your buck on a per-unit basis, plus revenue streams from multiple sources. This can also help relieve pressure if any of the units ends up vacant for a period — at least the others are still producing.

My colleagues at RPM Mortgage have a program that may make looking at investment property even more compelling, even if you don’t qualify on standard income requirements. They’re offering loans up to $2 million on single-family residences, PUDs, multiunit buildings, and condos with no income documentation required, so long as the property being loaned on is for investment purposes alone.

Again, the tax implications for investment property are different, so always consult your tax professional. And, as with vacation homes, you may want to consider using a property management service, and to budget carefully to be prepared for maintenance costs, as well as any revenue lost when units go vacant.

Ready to investigate buying a vacation home or investment property? I am a certified Resort and Second-Home Property Specialist (RSPS). RSPS is an official NAR Certification, and allows buyers and sellers to have confidence in the ability of a REALTOR® who specializes in buying, selling or management of properties for investment, development, retirement, or second homes in a resort, recreational and/or vacation destination, to assist them with their search. I have an extensive network of realtors all over the country. Contact me, and we’ll get started.

See also: Can't Afford To Buy A Home? Maybe You Can Afford A Weekend One (Refinery29)