What You Need To Know About Buying A Vacation Home
Owning a vacation home is one of the sweet extra perks of the American Dream, but not everybody can successfully pull it off. The idea of getting away from it all — especially during a pandemic — is alluring, but there are serious questions (and possible consequences) to consider when contemplating taking on a second home.
Here are just a few:
Is now the time to buy a vacation home?
Despite the pandemic and the related economic fallout, real estate seems to continue to be a solid, favorable investment. However, the pandemic has brought uncertainty to our economy as well as to businesses and personal finances. We don’t wish this on anybody, but layoffs and failed businesses are a possibility during lengthy lockdowns and slowed/stalled economies.
Are you okay with additional financial risk?
This is a question you may ask yourself especially if you already have one mortgage. Renting your second home can seem like a solution in theory, but you can never guarantee consistent vacancy on any rental property. If you were to lose your job or have a financial strain (like medical bills), the disruption could throw you into a financial tailspin. Remember that your mortgage takes no vacation. Also, you’ll have to pay that mortgage even during the months you are not physically present in the vacation home.
How much time will you be spending at your vacation home?
Remember that the house lives on when you’re not living there: utilities, water, mortgages, homeowners’ fees (if applicable), and even the cable and Internet bill. You may also have to pay someone to check in on the house and perform various maintenance.
If you’re thinking of the home for your retirement, will it be a perfect fit?
Sometimes a vacation house is just that — a house for a vacation. The property could feel a little different — even disappointing — if you were to live there full-time. For instance, if it’s a beach house, would you miss living closer to an urban environment? Give some real thought to what it might be like to live in your vacation house year round, and consider the cons and well as the pros.
Will you treat your vacation home as a business?
With the advent of platforms like Airbnb and VRBO, it’s easier than ever to offer up your vacation home as a means to secure an additional income flow. However, you may want to consider any local tax complications. Will the IRS consider your vacation home a business for tax purposes? Are you able to rent the house for less than a few weeks at a time? This may affect what type of tax you may owe. And, of course, there’s always the consideration of what constant guests in your house may do to your property, and the cost of cleaning, maintenance and replacement. Do these considerations outweigh the prospect of renting out your vacation home?
How much do you know about your vacation home’s real estate market?
You may personally love your escape place, but how is its resale value? Do as much due diligence as you can regarding the market surrounding your property. How in demand would it be as a vacation home to renters or other buyers?
Buying a vacation home is a tempting idea, but before it becomes a reality, make sure you have the money, the means, and the security it takes to swing at least two houses. Also, be sure that the area you are considering is a solid market for vacationers and renters alike. Think about your vacation home as a long-term goal rather than just a place to get away a few times a year — and make sure that thought makes financial sense.