The Differences Between Buying A Second Home vs Investment Property

If you're thinking about buying additional real estate, one of the first decisions you’ll face is whether you’re purchasing an investment property or a second home. While each type of property may seem similar on the surface, the purpose behind your purchase — and how you use the home — can significantly impact your financing and even your long-term goals.

So, what exactly differentiates these options from one another? Whether you’re curious about potential income opportunities or looking for a getaway to enjoy understanding the core differences is the first step to making a smart decision. This guide will break it down.

An investment property is typically purchased with the goal of generating income, either through short-term vacation rentals or long-term tenant leases. If you don’t plan to live in the home regularly and you’re hoping it’ll appreciate over time, it likely falls into this category.

In Edina real estate, you’ll find a range of exceptional properties that appeal to investors, from multi-unit buildings to detached homes in high-demand neighborhoods. This affluent Minneapolis suburb has a steady rental market, strong property values, and thriving appreciation trends, which are ideal for long-term returns.

Of course, financing an investment property comes with specific requirements. Lenders usually require a more significant down payment — often 20% to 30% — and interest rates tend to be higher compared to primary residences or second homes. You’ll also be asked to demonstrate sufficient cash reserves and show proof of rental income if you already own other investment properties.

A second home, by definition, is a property you live in part-time while still maintaining your primary residence elsewhere. This could be a vacation home, a seasonal residence, or a weekend retreat. Unlike investment properties, second homes aren’t intended for rental income or profit-making as their primary purpose.

In Minnesota and Wisconsin, the typical second home is the quintessential lake cabin. A place “Up North” to enjoy nature, lake living, and outdoor recreation. Another common option is a warm weather home in a location like Naples or Fort Meyers Beach, Florida. “Snow Birds” spend their summers in their primary residence in the Twin Cities, and winters in their second home. The Cari Ann Carter Group can help you navigate buying a cabin up north, and has an office in Florida dedicated to warm weather property.

Lenders treat second homes differently from investment properties. The down payment can be lower — sometimes as little as 10% — and the interest rates are often more favorable. However, you typically can’t rent out the property consistently without it being reclassified as an investment.

When you apply for a mortgage, how you plan to use the property plays a major role in how lenders evaluate your application. If you’re purchasing an investment property, expect tighter underwriting and a more rigorous approval process. Your income, assets, and existing real estate portfolio will be heavily scrutinized.

Second homes are typically easier to finance, especially if you have a strong credit profile and minimal debt. You’ll still need to show that you can afford the payments in addition to your primary residence, but you won’t face the same risk classification as investors.

Chad Johnson at Bell Bank is our local lender recommendation. He can help you navigate financing an investment property or second home. For our non-local readers, find an NMLS licensed financial services provider.

Another major factor that sets these options apart is how you plan to use the home. If you’re buying purely for return on investment, then profitability, occupancy rates, and local regulations around rental licenses will be at the top of your mind. On the flip side, if your dream is to have a relaxing retreat, then convenience, comfort, and long-term enjoyment will likely matter more to you than rental income.

Think about your lifestyle goals. Do you want a quiet place to escape for long weekends or summer months? Are you laser-focused on cash flow, appreciation, and future resale value?

Your answer will help shape your buying strategy. Your real estate agent will help you evaluate each listing — not just for its features but for how well it aligns with your intended use.

One detail buyers often overlook is how maintenance works for each type of property. For instance, who will take care of snow removal, lawn care, or minor repairs while you’re away? If you're investing real estate from out of town, you may want to hire reliable contractors or a property management company for these tasks. These ongoing costs should be factored into your budget — whether you’re renting the home out or visiting occasionally.

Ultimately, the choice between an investment property and a second home comes down to your financial goals, how much time you’ll spend at the property, and how you plan to use it. If you’re looking for long-term income and asset growth, an investment property might be the better route. If you want a place to relax and enjoy throughout the year, a second home in Edina is likely a better fit.

Buying real estate in Edina — whether for investment or lifestyle — comes with incredible potential. Take the time to clarify your goals, and be honest about how much effort you’re willing to put into managing the property. Most importantly, surround yourself with local experts who can help you make informed, confident decisions every step of the way.

Whether you’re dreaming of rental income, a peaceful seasonal escape, or both, Edina real estate offers plenty of opportunity. With the right strategy, your next property purchase will be the perfect fit for years to come. For expert guidance in Edina real estate, team up with the Cari Ann Carter Group today.