If you are dreaming about owning a vacation home, you are not alone. The COVID-19 pandemic has a huge percentage of the population working remotely, and for many, that will likely not change anytime soon. That fact, combined with low interest rates, has people yearning for a second home in a lovely place where they can escape from time to time. The vacation/second home market is hot, but inventory is currently low. Now is a great time to start saving, research your desired area, and run property searches frequently to see what’s available. As with any home purchase, an experienced real estate agent will be an invaluable asset for your search.
How well do you know the area?
Whether you are looking for a small urban apartment in an exciting city or a luxury beachfront home, make sure you are familiar with the area. Have you visited the location many times during different seasons of the year? Check out the nearby amenities, such as good restaurants, sports venues, or local attractions. You’ll also want to learn about potential problems. What is the chance of destructive weather? What are condo rules regarding pets or guests? How much will you pay for condo fees or homeowners association dues? Are the tourist crowds in your new community more than you can handle? It’s risky to make a decision based on only one short visit to the area. Immerse yourself in order to make knowledgeable decisions.
A second home is expensive.
If you haven’t accumulated the finances for the purchase, start saving now. Consider an automatic withdrawal from each paycheck. If the money never appears in your checking account, you’ll miss it less. The down payment for the mortgage will range between 20 and 30 percent. If possible, consider making a cash offer on the property. In the currently booming market, many buyers are buying with cash, giving them a definite advantage against other offers.
Also, are you financially prepared for regular upkeep and surprise expenses? As with any home, there are regular expenses such as taxes, insurance, utilities, and upkeep. Plenty of unexpected situations will undoubtedly come along, too. You will either need to sharpen your handyman skills or be prepared to pay someone to do repairs for you.
How do you plan to use your new getaway?
- As a primary residence, you will spend most of your time there. The down payment could be much lower and your tax benefits will be higher.
- As a second home, it will be available whenever you want it, but lenders won’t allow you to rent it out when you aren’t there. Mortgage rates and tax benefits will be the same as your primary residence.
- As an investment property, you can use it when you wish and rent it out the rest of the time. Lenders will expect about 30 percent down and tax benefits are less.
It can be profitable to rent out your vacation home.
Be conservative if you plan to rent your home to others. Sometimes it just doesn’t work out. However, there is a good chance that it would be an excellent moneymaker, which will help you defray all the costs associated with your investment. Be familiar with local laws and regulations pertaining to renting. Trust your real estate agent to help you with the details. Your vacation home must be nicely furnished throughout. Renters will not be pleased with mismatched dishes in the kitchen or sagging mattresses in the bedrooms. You will need to market your place, schedule your renters, and arrange for a cleaning service. A property management firm may be your best choice to handle those duties, especially if you live far away from your vacation spot.
Make a pros and cons list before you decide to buy.
A big help as you think through this purchase is to list everything you would love about having a vacation home as well as the disadvantages. Here are some examples.
The Plus List
- You can decorate and furnish it as you wish.
- You can keep your belongings there instead of having to take them back and forth for each visit.
- It will be a great place for family and friends to gather.
- Real estate values in popular areas are likely to appreciate.
- It could eventually become a full-time home when you retire.
The Drawbacks List
- As already discussed, it’s expensive to maintain a second home.
- Because of your investment of labor and dollars, will you feel obligated to spend every vacation there?
- You will need to schedule time for maintenance.
- Financing a vacation home can be difficult.
Do the research and make a wise decision about purchasing a second home. If you decide the answer is yes, you may be providing yourself and your family with years of fun and precious memories in your favorite vacation spot.