8 mistakes to avoid when buying a vacation home

Published Date: August 21, 2023

Modern House
If you prefer staying at vacation rentals over hotels when you travel, you might be thinking about buying a vacation home. The freedom of ownership, the investment potential, the ability to stay anytime you want — it sounds like a dream come true! If you take the plunge without considering some key details, however, owning a vacation home can suddenly feel more like a bad dream. Here are eight mistakes to avoid when buying a vacation home. 

Going over your budget

This applies to any home purchase, but it’s easy to get swept up in a vacation home fantasy. If you had a great experience at a vacation rental in a particular area, your fond memories might convince you to spend “just a little bit more” in order to buy in that neighborhood. Or if you happen to catch a spectacular sunset when touring a property, it may seem meant to be, despite the out-of-budget price tag. In addition to your mortgage, you also need to consider ongoing costs — you still have to pay utilities year-round even if you only use the home occasionally — and budget for unforeseen expenses. Since buying a vacation home probably isn’t urgent, take your time to find something you love that’s also within your budget.The Pacaso fix: When you buy a second home with Pacaso, you can have it all — a stunning home in a desirable location for ⅛ the cost. Monthly operating expenses are shared, pro rata, among all owners, so you’re not responsible for a whole home’s ongoing costs. Your second home budget goes further, and you don’t have to sacrifice your picture-perfect vacation home dreams.

Counting on rental income to pay the bills

When buying a vacation home, many people plan to rent out the property when they aren’t using it to offset the costs of ownership. Multiply the going nightly rate by the potential number of available days, and you might think you’ll not only cover your mortgage, but turn a tidy profit. Well, you might. But there are several factors to consider. 
  • Are you willing to self-manage the rental (fix the things that break, market the home, manage the calendar, deal with unhappy renters … the list goes on)? 
  • No? Then be prepared to pay a local property management company anywhere from 10-50% of your revenue to take care of that for you.
  • Have you budgeted for the wear and tear of a vacation rental, which means more frequently replacing furnishings, fixtures and appliances? 
And those are just a few of the considerations that come along with vacation rental ownership. It’s a great option for some people, but it can be a real headache for others.The Pacaso fix: Since you’re only buying the amount of ownership you actually plan to use, you don’t have to worry about filling in the gaps with renters. In fact, Pacaso doesn't allow rentals, as the homes are meant to be enjoyed by each owner and their guests (which also means less wear and tear). 

Not researching the location or climate

If you’ve only visited your vacation home destination for short periods of time or during ideal weather conditions, you might not be prepared for seasonal or geographical surprises. Let’s say you normally vacation in Palm Springs over the winter holidays, but you expect to use your second home mostly in the summers — if you prefer the moderate winter temps, you may be sweltering in July. Or if you buy a beachfront property, understand that the direction your home faces can influence the potential for storm damage or exterior wear over time. Before buying a vacation home in an unfamiliar area, be sure to do your research. The Pacaso fix: We have Pacaso market advisors, and we partner with knowledgeable real estate agents in each of our markets. These area experts know what to expect and can help you decide if the location is right for you. We carefully evaluate each home before selecting it as a Pacaso, and we only choose the best locations for our second homes based on buyer demand.

Not getting the right insurance

Vacation home insurance policies are usually a bit different than standard homeowner policies. Many providers consider vacation homes higher risk if they will be vacant much of the year. For example, if a pipe bursts and no one discovers it for a month, the damage could be severe. And if you’re buying a vacation home in an area that’s prone to floods or hurricanes, you’ll likely need supplemental insurance for natural disasters. Finally, if you decide to rent out the home — even if it’s just a part-time rental — you need to see if your policy covers damages and liabilities related to rental property. The Pacaso fix: All home costs, including insurance, are budgeted for on an annual basis and passed back to owners at cost. You don’t have to research policies or worry about making a claim if something happens. Pacaso ensures the home has the right policy and handles any issues with the insurance provider. 

Not checking local property tax rates

Property taxes vary considerably from state to state and county to county. If you don’t factor property taxes into your second home budget, you may find yourself overextended. If you’re buying a vacation home in a resort community, there may be additional taxes or fees, so be sure you know your total costs before you make an offer.The Pacaso fix: Property taxes, along with ongoing home costs, are included in the monthly owner expenses for each home and shared with buyers upfront. Pacaso manages the payment of property taxes and provides owners with an annual K-1 tax form.

Forgetting to budget for furnishings

You own a beautiful second home! A big, empty second home. Unless you’re planning to bring air mattresses, camp chairs and paper plates each time you visit, buying a vacation home also means buying furniture and housewares, potentially upgrading the appliances, and adding decorative touches to make the place feel like home. If you want to invite family and friends to stay, that means multiple beds, mattresses, linens, dressers, a sofa or two, a dining set — and all the dishes, flatware and cookware for meals. That can quickly add up to tens of thousands of dollars, depending on the size of the home. The Pacaso fix: We bring in professional interior designers to customize and furnish each home, and provide all the amenities you need to enjoy your stay. We also install the latest home technology and smart home features for added convenience. These costs are included in the share price, so you don’t have to budget for them after your purchase, and financing is available.  

Not anticipating the cost of utilities and maintenance 

You might only use your vacation home a few weeks or months a year, but the bills don’t stop just because you aren’t there. Depending on where your second home is located, you may need to maintain minimum levels of heating or cooling year-round to ensure the home functions properly. You’ll have fixed costs, like sewer and internet, and you’ll need to make sure someone is taking care of the lawn or cleaning gutters while you’re away. Plus, you’ll need to arrange those services and hope they’re reliable.The Pacaso fix: Pacaso estimates all the costs for maintenance — both preventative and ongoing — and utilities for each home. We also hold a repairs reserve to cover unexpected costs or emergency repairs. Pacaso shares the monthly cost breakdown with potential buyers upfront so there are no surprises after purchase. 

Thinking it’s easy to manage from afar

Your vacation home might be within driving distance, or perhaps it’s a plane ride away. Either way, trying to take care of typical homeowner maintenance tasks or repairs is a lot less convenient when your second home is hours away. Outsourcing those jobs will save you time, assuming you can find good handy people or contractors, which can be a challenge. If the home is in a popular vacation spot, those services will be in high demand, which means they may be harder to book and will likely come with a higher price tag. The Pacaso fix: Owning a Pacaso gives you all the advantages of a second home without all the hassles. We work with trusted local property managers who oversee the day-to-day management of our homes. They ensure the home and property are well maintained year-round, and they’re available to respond to any issues that may arise during your stay. The property management fee is passed back to shareholders monthly with no markup.Buying a vacation home can be a great choice if you’ve done your due diligence and are prepared for the costs and upkeep. But if you want the benefits of second home ownership without the responsibilities, and the assurance of predictable costs, Pacaso is an ideal option. 

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Amie Fisher

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