There’s nothing quite like the thrill of looking for a vacation home to own. But don’t let all the excitement overtake your need to approach this purchase pragmatically.
There are a lot of things to consider before taking the plunge. Do you want access to the home year-round? Do you plan to rent the home to others? Will the home be large enough to accommodate guests as well as immediate family? How will a vacation home affect your taxes?
Let’s take a closer look at what needs to be weighed before sealing the deal on a vacation property:
Location, location, location! As with any property being eyed for purchase, where it’s located is a major consideration. If the home is intended to be used by family and friends on a regular basis, such as a beachfront house during the summer months, then you probably want a property that doesn’t require flying to every time you want to get away.
And if you’re looking to also rent the property, then you should think about its rental demand potential beyond one season a year. Other factors to consider from an investment perspective are the community’s overall economic health and growth projections, and the property’s appreciation potential.
Check it out before you buy. If possible, rent the property for one or two weeks on several occasions and at different times of the year. This gives you the opportunity to determine if the home is a “good fit” and will help you gauge the busier times of the season(s). Also, get to know the “locals” and whether you feel comfortable around them. This is especially important if you intend to eventually retire there.
Don’t overextend yourself. Stay within your budget when buying a second home. The last thing you want is to be stressed out over whether you can afford the home while you’re spending your vacation there. This means getting a handle on costs beyond the purchase price, such as property insurance, homeowner association fees if any, and routine maintenance costs.
Figure out the tax situation before buying. Property taxes on a vacation home typically are different than for a primary residence. For instance, they may be higher if the property is located in a resort area. And there may be tax consequences if you intend to rent the property to others.
Don’t lose sight of expenses when renting. Repairs are an inevitable part of renting a vacation home. A good rule of thumb is to presume repairs will be about 1.5 percent of a property’s value. That equates to about $3,000 in repair costs annually for a $200,000 house.
There’s definitely a lot to consider when buying a vacation home. But by doing your homework ahead of time, you’ll be able to truly sit back and relax in your personal getaway.