A vacation home can seem like a great idea – you have a place to escape to without dealing with reservations and restrictions, but there are many things to consider before you invest in this type of home.
The first thing to consider is how you will use this home. Are you going to own two homes; one home as your primary residence and the other to be your summer or winter home? Are you going to own this home to frequent just once or twice a year and rent it out the remaining time that you are not there? Once you know your goals for the home, you can decide whether or not it is the right decision for you.
Determine your Financial Situation
The first obvious step is to determine if you can financially swing it to have your money tied up in another non-liquid investment. If you own one home and plan on owning a second for vacation purposes, that is a large amount of money tied up in an investment that might not turn into cold hard cash for many months if you decided to sell it. Before you purchase that vacation home consider all of the costs that you incur now as well as those that will come into play as a result of owning another home to determine your financial situation as it pertains to purchasing another home.
Determine Every Single Cost
All too often excited homebuyers jump headfirst into the purchase of a vacation home without realizing what they are getting themselves into. You have so much more to think about than the purchase price of the home. Following is just a sample of the fees you have to consider:
- Homeowner’s association fees
- Homeowner’s insurance
- Real estate taxes
- Utility costs
- Home maintenance and repairs
- Damage control if you rent the home out to others throughout the season
These costs can really add up, especially the maintenance and repair costs. You should talk to people or professionals in the area to see what the standard repairs are like in the area. For example, homes near the ocean typically have to replace roofing and windows much more often than homes that are not located near the ocean from the damage from the sun, wind, and waves. This could be an extra expense that you did not consider when you purchased the home, so do your homework!
Don’t Count on Rent
When you figure the cost of owning a vacation home, do not rely on the fact that you can rent the home out, thinking that your mortgage is covered. You never know what the economy is going to do in the area where your second home is located; some seasons you might be flooded with rental requests, while other times it might sit idle. It is best to make sure you can comfortably afford the mortgage on your own; you can use the rental income as bonus income.
Consider How Much you will Use a Vacation Home
Sometimes the idea of owning a vacation home is more glamorous that it turns out to be. If you are really serious about purchasing a second home, do so after you have really found a place that you enjoy visiting. You should visit during several different times of the year and thoroughly research the area to make sure it is somewhere you will enjoy spending time not only now, but in the future, as this is a long-term investment you are thinking about making.
When will you Pay it Off?
This is often the most burning question for people considering the purchase of a vacation home. Do you have a mortgage on your primary residence? If so, when will that be paid off? When do you see yourself paying off the home in your favorite vacation spot as well? If you are renting it out, you can put the rent towards the mortgage on top of the money you can afford to put towards it yourself in order to pay it down faster. A home for vacation that is paid off is certainly better than a home that puts you further into debt.
There are many things to consider when purchasing a vacation home. It might not be the right decision or everyone, but it can certainly bring you financial gain and plenty of pleasure if you approach it the right way. Make sure you are doing your homework and really thinking through to the future years to determine the right choice for you.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.