With the economy looking up, people are starting to think about big purchases they had been putting off for some time. What kind of big expenses? A new car! A new home! A new… vacation home?!
Yes, a vacation home! A client recently came to me to say he and his wife were finally ready to take the plunge. Minnesota winters were getting too long for their liking, so these former snow bunnies decided it was high-time to buy a place near the high seas.
I’m proud of them, for sure. But it also begs the question – is buying a vacation home a good idea? If you’re considering it, ask yourself a few important things:
How will you use it—and how often?
Is this going to be a seasonal home or a future retirement spot—or both? If you’re like many Americans, life gets busy! Work, family and other obligations can be all-encompassing. Think about how often you’ll actually use your vacation home, and determine whether you’d be willing to rent it out when you’re not there. According to experts, the sweet spot is a destination that’s no more than a three-hour drive from a major metro area. The proximity can help with resale, plus it usually draws a larger pool of potential renters. If rental income is important, be sure local laws or association by-laws allow it before making a purchase.
Can you afford all the costs?
Purchase price is important, but that’s not the only cost you’ll have to swing. You’ll also need to pay for property taxes and insurance, potential homeowners or condo association fees, and the cost of utilities and maintenance. Your tax implications can vary, too, depending on how you decide to use the home. If you rent it out for more than 15 days a year, for instance, you’re supposed to declare this income to the IRS. And if you determine that you’ll only use the home on an occasional basis (less than half of the year), banks may require you to put down a larger down payment and pay higher interest rates, similar to those of traditional investment properties. Last but not least, don’t forget – if you fall in love with a place that’s more than a car-ride away, you should factor in the costs for airfare if you’re traveling often.
Do you have a plan for when you’re gone?
If you live more than a couple hours away, you’ll probably want to consider hiring a local property manager to oversee regular maintenance issues (like mowing the lawn or cleaning the pool) and dealing with tenants, if you decide to rent. You’ll also want to take measures to protect the property while it’s unoccupied. A security system is a no-brainer, and it might even reduce insurance costs. Another safe bet is to install motion-censored exterior lights, timers for outdoor lighting, and leave a car parked in the driveway every so often (courtesy of a neighbor, perhaps) to give others an impression that there’s someone coming and going at all times.
If you’ve answered these questions and still feel like a vacation home is right for you, congrats! The best thing to do is to contact a local real estate agent to guide you in your search. While I would have loved to help my clients in their search, the fact of the matter is they were looking in Boca Raton and that’s simply way outside my market area. Local agents are better able to provide insight about the community, local real estate trends and various market opportunities. Call on your realtor to do the heavy lifting and before you know it, you’ll be kicking back, relaxing and enjoying a margarita in a world that seems so far away!