Been on vacation recently and catch yourself dreaming of owning the house you rented? You are not alone. Many people find that when it comes to buying a second home, their ideal vacation property is found in places they have visited, loved and can see themselves returning to on a regular basis.
It just makes sense to consider vacation homes in a location where you will probably end up vacationing for years to come. Also, you need to visit your vacation home often to make the purchase worth it, so it needs to be a place you can see your family enjoying long-term.
If your recent vacation has you thinking about buying rather than renting your accommodations there are pros and cons to consider. While owning a vacation home can make logistical and financial sense, it's not a decision to be entered into lightly.
Here are some key things to think about:
Can you afford to do this right now? Rates are still at historic lows, but they are expected to continue to rise over the coming year. If you are using cash, are you prepared for it to be tied up for a few years? You can't count on being able to sell a home for a profit, or even just for how much you spent on it, especially in your first few years of ownership.
Does the area of the home offer long-term enjoyment for you and your family? This may be a simple yes or no answer. If you are retired and are buying a home for the water sports nearby, consider the fact you may not be waterskiing six years from now. Weigh in all the reasons you will enjoy the property in the future and what may not be relevant in the coming years.
Look at the actual costs and potential for renting it out. The actual purchase price is only part of what you will need to spend. You will also have to pay utilities, HOA or condo fees, property taxes, and insurance. Renting out a vacation home comes with expenses too: you will need to pay for cleaning between tenants, advertising, and perhaps property management. If you're part of a resort rental program, it will take a percentage.
Do you have a plan for maintenance and emergencies? What will you do if a pipe leaks or the furnace breaks while you are not there? Investigate repair services and handy men available in the area. Hiring a property manager might be a wise decision – especially if you plan on renting it when you are not using it.
Understand the impact on taxes. If you are going to rent out the property some of the time, you will have to pay income taxes on your rental income each year. Also, the tax rate for your vacation property may be more than your current home.
As always, it pays to do your research and ask questions before you make any decision. Talk to a real estate agent who understands the vacation home real estate market in the area you are considering and who will work with you to find a vacation home you can afford as well as love.