Before you pack up all your stuff and head over to your favorite resort for the fourth year in a row, take a moment to think about how much easier your life would be if you had your own vacation home.
Having another home just for vacation getaways can be pretty glamorous--and profitable too.
About 1.13 million vacation homes were bought in the United States in 2014, and this year, total revenue from vacation home rentals comes out to almost $18 million.
But even if a vacation property can make a great long-term investment, buying a vacation home is not a decision to be taken lightly.
No matter the benefits of owning a vacation home, buying a second home comes with some risks. It's crucial that you do your homework and plan ahead.
Follow these tips to make sure that buying a vacation home is the right decision for you--and keep these things in mind before putting down your hard-earned money on a second home.
Why Buy a Vacation Home?
Imagine sitting on the porch of your vacation home, overlooking the ocean or the mountains while you pour yourself another drink.
You've escaped your day-to-day responsibilities and you're determined not to check your email until you're back home in a few weeks. You're living the life.
If you've got the money to spare, owning a vacation home can be the ultimate luxury. And you can score a few extra bucks off of it too.
What you get out of it depends on how you plan to use it. Here are a few of the different benefits of a vacation home.
42% of vacation home buyers are planning on using their new property mainly for vacations or retreats.
If you've got the perfect location in mind and you love visiting it year after year, it might be time to buy a vacation home there. In the long-term, it can save you the hassle and cost of renting other lodging facilities.
Owning your own vacation property comes with a lot of other perks. Here are a few to keep in mind:
- Flexibility. You can use your new property whenever you want to--no need to worry about booking anything ahead of time
- Convenience. All your personal items will be there already. Even just the little things like bedsheets, towels, and kitchen appliances will save you a lot of time and energy
- Comfort. You can customize your home to look any way you want. Painting, decorating, or renovating can help add a personal touch to the property--so it will feel just like home
- Taxes. While buying another house will add on to your property taxes, a vacation home is still a great chance to build equity
If you plan to visit your vacation home often, you might even dream of living there one day after retirement.
Taking on your vacation property as a primary residence is a great way to take advantage of everything the location has to offer. Buying a house first as a vacation home can also help you lock in a retirement home at a lower price.
You can also buy a vacation home as a residence for a family member or friend.
Whether it's buying a vacation home that doubles as a retirement home for aging parents or as a house for children to live while attending college, you can make your vacation home a great place for family and friends to live when you're not using it.
Renting to Others
Beyond using your vacation home for the yearly getaway, a big motivator for buying a second home is the opportunity to make money through rent.
Whether it's a year-round rental property or just rented out during certain seasons, you can fit your rental periods around when you'll be using the house.
The last thing you want is your expensive home to be sitting around empty for most of the year--racking up extra charges on its own. Not only will renting help you offset the cost of the original purchase, but it can also help for the maintenance, upkeep, and property taxes on your house.
10 Things to Know Before Buying a Vacation Home
So you've decided to take the plunge and buy a vacation home.
You've picked out the color of your new carpets, you're searching for nearby attractions, and you're already calculating how much money you could get off a rental.
Just don't get too far ahead of yourself. There's a lot that goes into buying a vacation home.
Before you put down your hard-earned cash towards a vacation house, here are some things you should know.
1) Pick the Right Location
Location is one of the most important considerations for buying a vacation home.
Be sure that you absolutely love the area around your vacation home. Whether it's the beach, mountains, golf courses, the local town, or a ski village--you have to know that you adore the location before you commit.
Don't even consider purchasing a new property until you've visited the area multiple times. You can even rent the property for a week or two to see how you like it.
Just don't forget--it's not just about what you're looking for. Keep in mind that if you want to rent out your property, you have to make sure that others will want to spend time there too.
Typical vacation destinations will work well for potential renters, but tourists will also visit cities for conferences, meetings, or vacations. Some potential homeowners owners will look to rent in the area first before committing to buying their own house. Do some research and find out what the market is for rentals in your area.
2) Know All the Costs
Before you even consider buying a vacation home, you need to be honest with yourself about your budget.
There's no sense in purchasing a home for relaxation purposes only to stress yourself out over the cost. Make sure you're buying a house that doesn't force you to stretch your budget.
What can you actually afford? Put together the total price of owning a vacation home. This includes the upfront cost, property taxes, insurance, landscaping, and other maintenance services.
In the end, real estate can be a fickle business. You can't count on rental money covering a home entirely--at least not for the first few years. You also might not be able to sell your home for a profit later down the line if houses in your state lose some of their value.
Be knowledgeable and aware of the housing prices in your area--and make sure you have a well-planned budget.
3) Be Ready to Work
Owning a second home isn't always a vacation.
You'll need to put money and effort into your property every year to keep it well maintained.
Before you start renting, it might be a good idea to hire an interior decorator or do some personal upkeep yourself. Make sure that the inside of your home is clean, stylish, and well stocked.
Keep in mind that you should budget about 1.5% of the cost of your home to spend on repairs each year. This could include fixing the roof, hiring a landscaper, enlisting a cleaning service, and more.
4) Know How to Get There
Whether you're using the vacation home yourself or just stopping by to check for maintenance issues, you need to make sure you can get there quickly.
Even if it sounds romantic to have a house deep in the mountains or far down the coast, it won't get much use if you need a flight and a long drive to get there.
When the home isn't being rented, you don't want it to sit empty for long periods. Try to find a vacation property that's within a few hours drive. If it's not close to your home, be prepared to commit to a long travel time to get there.
Be honest with yourself--how often do you plan to visit your vacation property? Are you planning to hire somebody to do maintenance or to do it yourself? All of these are important factors in determining the distance between your house and the vacation home.
5) Have Rental Income
It's important that you have a good understanding of what it takes to rent out a vacation home.
If managed correctly, you can pay off some of the expenses or even offset the whole cost over the long-term. Research the local property prices to get a sense of what you can expect from the area.
If you're not sure where to start, try setting the weekly rental rate to about 10 to 20% higher than your expected monthly mortgage payments. You can include additional fees to cover maintenance, cleaning, or yard work costs.
Make sure you stay realistic in your expectations of income. Many buyers are overly optimistic about how often they'll be able to rent.
Depending on where your vacation home is located, it might be hard to find renters during certain seasons or months. You can't expect to fill the space every month of the year. Calculate your expected vacancy rates into your budget.
6) Taxes Can Be Complicated
Beyond the property taxes of just owning the home, expect to pay rental income taxes.
Be sure to familiarize yourself with IRS regulations on vacation rental homes. If you're doing rentals for less than six months, the state will consider you a landlord. This means that you'll be paying the same taxes that hotels or apartments pay.
If you stay at your own rental property for 14 days a year or more than 10% of the combined rental period, the property is still considered a personal residence. In that case, you'll be able to deduct expenses up to the level of rental income.
Federal taxes aren't all you have to worry about though. Check with the requirements at the state and local government level about any additional sales or lodging taxes.
7) Have a Business Plan
Before you commit to buying a vacation home to rent, make sure that you're prepared.
Decide what your business plan is going to be. You can go through a rental program, which will deduct a percentage of your income but will also help you find consistent renters. Another alternative is to hire a rental management company.
If you're doing it yourself, how are you going to do it? Online advertising? A service like Airbnb?
When you're doing your own advertising, you need to make sure that your home looks as good as it can be. Make sure your interior design is perfect before you shoot. Take high-quality photographs in flattering lighting.
You also need to take payments from your renters through a service like PayPal or Venmo. Create a schedule for regular payments from your tenants and be sure to schedule a reliable cleaning service between rental periods.
The Bottom Line
Owning a second home can be a great next step if you're looking for a permanent vacation spot. You'll get the peace of mind of a relaxing family vacation along with a great investment--as long as you do your homework and research well.
Buying a vacation home is a marathon, not a sprint. Don't be afraid to take your time, find the right location, check out the property, and make a thorough business plan.
Ready to invest in a new vacation home? Contact us today to get started.
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