Things to Consider When Buying a Vacation Home

So you’ve decided it’s time to buy a vacation home. Great! Now what? When it comes to buying that home away from home, there are a few important things to consider:

1. Location is Where It’s At!

Ok, that’s a little pun-y, but really, location is critical when it comes to buying your second home. Consider what you plan to do there. Is this a family retreat spot? It should probably be easily accessible – that means around a two-hour drive or give-or-take 180 miles. Flights make everything more difficult, so avoid a place that requires a trip to the airport unless that’s something you’re willing to do – and you’re the only one that has to do it. Local crime is also important to take into consideration since you probably won’t be there as often as you like, and you need to have the peace of mind your belongings are safe and sound while you’re away. That brings up the next location point: you may choose to rent out your vacation home when you aren’t there. If you do, make sure it’s in an area with rental demand in times when you don’t want to be there. If your location is only popular three months out of the year (the same three months you plan to be there) renting it will be incredibly difficult. Plan to be there a little more than the average tourist? Try renting a place in your prime location first. This will help you learn exactly what part of town you want to be in, but more importantly, if living there is worth your time. If you get bored on extended stays, it’s probably not a place to throw down a welcome mat. You might find renting is a better option, after all. All the perks of your own place with none of the home-owning hassle.

2. Budget Wisely

Vacations are about getting away from stress, not manufacturing more of it. Don’t buy a vacation home that is a stretch to afford. Monthly costs might get away from you, and there will be no wiggle room if you want to make any upgrades to the property. Even if maintenance is only 1.5% of the value of the home, it can add up quickly. Some years will be higher, some lower, but plan on that amount for budgeting. You’ll also need to consider the cost of insurance. Ocean front property is beautiful – but also at higher risk of hurricanes or floods. Vacation homes are usually more expensive to insure because of their locations – there’s that location again – so plan for more than what it typically costs to insure your primary home. Don’t overestimate rental income, either. Even if your location is the holy grail of all vacation destinations, you might not be able to rent it out every month of the year, and you need to plan for that. This is especially important if you plan to be there in the peak tourism times. Check with a local rental agency to get a sense of how many weeks a year your rental home will most likely be occupied. If you choose to hire someone to manage the property for you, you’re looking at even more expense, regardless of whether you have a renter every month. In short, vacation homes can be costly. Choose one that’s well within your means.

3. Don’t Forget Uncle Sam

No matter how remote your vacation spot, you can’t get away from taxes. Rental home taxes often do not work like primary home taxes either, just to keep things more interesting. The location of your vacation home may have higher property taxes than where you normally live, so you’ll need to budget for that (funny how these all connect, right?) when buying the home. Some states also tax higher for second residences, like Florida. Before you buy, meet with a qualified real estate agent to learn more about taxes in the area. Sometimes you can save big by buying just outside the city limits. Think you’ll dodge some of the cost with that renter income? Sorry, but you’ll also have to pay income tax on the rental income. They really weren’t kidding when they made up that “death and taxes” line.

What it all boils down to is research. Take your time, and put a lot of thought into your vacation home before you make a purchase. You wouldn’t jump on buying a primary home because a friend of a friend has this great place in a great spot that needs to move, like, yesterday, so why would you fall for that with your second home? Give this decision all the thought and care you would with your first home. By doing your homework, you can avoid buyer’s remorse and making costly mistakes.