Buying a vacation home is a dream many people have. Currently, there are over 7 million-second homes in the USA, getaway properties you can escape to whenever you have the chance to enjoy a different pace of life and have a spot you can rest and relax in and enjoy. Whether you live in the city and are considering a waterside property purchase, or you want a cabin in the woods to escape suburbia, there are many possibilities for your second property.
But there are also a lot of decisions to make too before buying a vacation home. From location (Floridas is still the top popular destination for buying a vacation home to cost, taxes, and security, you will have a lot on your hands when it comes to finding the perfect property to have as your vacation home.
Real Estate Values Will Be Different
One thing you do need to have in mind before buying a vacation home is that real estate values will vary from location to location. While the general prices of homes in your local area might be low, if you are staying in a popular tourist area or a location popular for vacation rentals and purchases, you can expect to pay a higher price due to demand. Another factor that will influence the rise alongside demand is the current state of the real estate market as a whole too. If prices are currently inflated, it might be worth putting plans on hold until they drop again to avoid paying more on your mortgage if you take one out, paying higher taxes, and being left with a property that won’t hold its current value.
Will You Be Happy Only Vacationing Here?
That’s not to say you cannot visit anywhere else in the world, but if you are splurging on a vacation home, chances are you will be reasonably spending much of your free time there. Is this something you are happy with? Unlike rentals which you can book as you wish, you will have this home at your disposal when you need it. It will likely be your base for future vacations from this point on.
Can You Realistically Afford It?
You are essentially taking on the running costs of a second home, and even if you buy this house outright with cash and have no mortgage on one or both properties, you will still need money to be able to afford the bills, taxes, and upkeep, and maintenance of the property.
All of this can add up over time, so make sure you crunch the numbers to ensure you know what to expect financially and how easily you can afford to manage a second home.
Don’t forget; you can get tax breaks on second properties, which can be up to $375,000 if you are married and claiming jointly; however, the exact value of the tax break will depend on other factors such as the usage, i.e., this will be lower if you rent your property out for more than 14 days per year,
Don’t forget you will need money to be able to make renovations and changes you wish, as well as repairs for HVACs, structure, emergencies, and insurance for the property too. All of this will add up and can be a massive strain on your finances if you aren’t considering renting it out when you are not using it.
If you are buying in a popular area, you might find there are HOA fees or resort fees. For example, if you are buying in a complex or a resort, you will have additional upkeep fees and responsibilities you will need to pay. This all needs considering too. While it might be the perfect vacation location when you own the property, it might not seem as fun if all you are doing is paying fees for amenities you don’t use or need. It can be worth moving slightly out of your preferred location to get better deals and remove the additional costs that come with prime locations while still enjoying the area, especially if you won’t be around to get your money’s worth throughout the year.
Another thing you need to consider is if there are times you won’t be able to access your property for any reason. If you are on a complex that closes for certain parts of the year, or it is inaccessible due to weather conditions for long periods, or you find traveling there too cumbersome to manage frequently, this could be a factor in whether or not buying here is correct for you. You want a place you can get to easily whenever you want to and is within easy reach of your primary residence to give you maximum benefit and usage time.
Lastly, you need to make sure you have a downpayment. Down payments on second homes, if you are taking on an additional property loan, are at least 10%, and this can be more if the lender requests a high upfront lump sum due to the size of the mortgage. Second, home loans are traditionally not covered and government-backed, meaning you likely won’t get any help or rebates for finding this sum of money to take out the loan. Of course, this isn’t applicable if you buy with cash. Still, it is definitely something you should be aware of before starting your search and applications for a second home.
Lastly, you need to think about whether or not you want to rent out the property. Some HOAs might have rules that restrict or forbid renting out a second home or using sites such as Airbnb; this can massively impact your updated plans if you were going to do this to help you afford the repayments or the expense of having a second property.
Keeping it for family use only means you need to be able to afford 100% of the costs and taxes of second home ownership while renting it out even for a few weeks per year can help you to cover mortgage payments or expenses or both, so you essentially get a holiday home that isn’t costing you too much at all.
Before diving in to make your dream a reality, you must consider all the costs, options, and complexities surrounding taking on a second property. While the success stories of holiday rentals can be enticing, it isn’t as easy as it looks. The same goes for the upkeep of a holiday home for personal use; it can take time and money to live your dream, and you need to be aware of this before taking the plunge.