More people than ever are pursuing the dream of owning a vacation home, and demand for second homes is on the rise.If you’ve mulled the pros and cons of second home ownership and you’re ready to make your dream vacation home a reality, we have a few tips you may find useful. Here are some things you should consider when purchasing a vacation home.
Reasons to buy a vacation home
A second home can be a great financial investment, but it is also an investment in the quality of your life. Be part of a communityOwning a vacation home means you’ll become a member of the community. Knowing your home away from home like a local will take your trips there to the next level. You’ll be privy to the best dining and adventure spots that typical tourists won't know about. Generate incomeYou could use your vacation home to generate rental income when you’re not using it. If you prefer not to rent it out, you might qualify for lucrative tax breaks on mortgage interest and property taxes.Earn equityProperty typically increases in value over time, so money spent on a second home may bring more rewards than splurging on luxury vacation rentals or hotels. And when it comes time to sell your vacation home, you might even turn a profit.Plan for retirementMaybe your vacation home will become your primary home one day if you decide to retire there. At the very least, it makes for an appealing alternative to consider!
Drawbacks to buying a vacation home
While the reasons to buy a vacation home are compelling, there can be some drawbacks. Local markets varyLearn about the real estate market in the area, and answer a few essential questions. Will the location appeal to short-term renters when you aren’t using the house? How far away is it from where you live, and will you want to travel there to maintain the property? What are the home’s property taxes and insurance rates? It’s expensiveSecond homes typically require higher down payments, starting at 10% or more depending on your credit score, compared to 3% or more for a primary residence. That can be a daunting amount to pull together when you’re already paying one mortgage. Also, expect higher interest rates on a second home loan. Lending institutions consider second home loans higher risk because if you experience financial difficulties, you’re more likely to prioritize payment of your primary home’s mortgage. Renting it out can be a hassleRenting out your second home can help defray costs, but it isn’t “passive” income. Being a landlord can get expensive and time-consuming, and it could be even trickier depending on how far away you live from your second home.
Match housing choices to your lifestyle
Choosing the right vacation home is a huge decision. Some of the steps to picking the perfect place include considering location, architectural style, and what you enjoy doing. Location: Are you looking for a remote and relaxing escape, or a hip destination with great shopping and nightlife? Do you crave mountains, beaches or vineyards?Style: When it comes to architecture and interior design, are you drawn to contemporary or rustic chic? Mid-Century Modern or mountain chalet? Open concept plan with a great room or more traditional, defined rooms?Activities: Do you want to spend time in a larger backyard, lounging by the pool? Are you longing to be steps from the slopes, with a roaring fire after a day of skiing? Would you prefer biking to wineries on backcountry roads? Whatever you choose, make sure you have enough bedrooms and bathrooms to accommodate your guests in style and comfort.
Understand the costs
Buying a dream second home also means dealing with financial realities. You’ll want to be prepared for not only the sales price but also ongoing expenses. Factor in the costs of utilities, taxes and home maintenance. If you live far from your second home or don’t use it often, issues may go unnoticed. So you might need to budget for landscapers and a property manager. Some property managers will handle the details of renting out your home when you’re not using it.