Owning a vacation home is a dream come true for many people. When it’s possible, there’s a time period spent examining the feasibility, from taking on another mortgage to keeping the home in a state of good repair. It’s all worth it in the end because it has many benefits, not only for you as the owner, but for family and friends, even others wanting to rent while vacationing in the area you choose.
Having a second home in a prime location is advantageous because you always have a dedicated place to stay and it’s got all the creature comforts and amenities you want and need. You don’t have to worry about booking a place to stay, and when you’re not there, family and friends also have a place to get away.
Finding the Right Property
If you have the financial means to purchase a vacation property, then you want to make a good decision because you don’t want to be in the future position of owning in the wrong area. That means stability is key, and it’s a big risk to buy in a place that’s up and coming. Established destinations are more expensive, but that’s precisely why those properties cost more.
“Never forget that the key to vacation homes is location, location, location. Sure, this is a cliché, but that doesn’t make it wrong. Before making an offer on a home, get to really know the area by visiting several times to explore the neighborhoods and check out the amenities. Aside from exploring during peak seasons, real estate professional Tortorella recommends spending time in there after the crowds clear out. ‘Different seasons bring different vibes to the area,’ she says. ‘Not only that, but some of the local stores and restaurants may only be open seasonally. You’ll want to be familiar with what the area has to offer during the off-season.” —Huffington Post
The old real estate cliche, “location, location, location” should be well heeded and kept at the forefront of your mind. Another important factor is the property’s appeal to renters who travel to the area. Think about families with children and don’t make the mistake of purchasing a property that’s only a one bedroom.
Function and style are also very important. Sure, you can buy a home that needs a little work and put some elbow grease into it to make it over, but don’t buy a home with serious problems or you’re purchasing a boatload of buyer’s remorse. Last but not least, don’t make a hasty offer, take a day or two to think it over and make a decision that’s outside the heat of the moment and the excitement of finding the perfect property.
Calculating the Actual Vacation Home Cost
Speaking of thinking things over, this is where many people go wrong. They tour a few or several houses, but once they find the one that exceeds their expectations, they go ahead without considering the true costs. Here are some things to consider about the expenses associated with a second home:
- The initial purchase costs. Most people who buy a second home think about two expenses going into the purchase: the purchase price and furnishing the home. Those, of course, are going to be a reality, but also, other expenses, like linens, dishes, entertainment, and other household items. These combined can easily add up to 25 percent to 33 percent of the purchase price.
- Higher mortgage expenses. Lenders are quite a bit more cautious these days and if you have a mortgage on your primary residence, that will cause your new mortgage to come at a higher cost. The down payment will likely be substantial, ranging from 20 percent to 30 percent or even more. What’s more, you might have to pay points to keep the interest rate in check.
- Property maintenance. A water line breaks or an appliance expires, these are not “if”, but “when” scenarios, as well as things like lawn care. Be sure you have the income to maintain your vacation property all year.
- Travel expenses and time. For the majority of second home owners, their vacation properties are a few to several hours away from their primary residences. That means long road trips or buying airline tickets.
- Frequency of use. When you purchase a second home, you’re going to pay for it and that means you’ll likely feel pressure to visit often to justify the purchase.
Lastly, if you decide down the road that you don’t want to keep paying another mortgage, you can either sell your primary residence or your vacation property. Regardless of which you choose, it will take time to sell, so understand that real estate isn’t a liquid investment.