For those that remember what the 2008 real estate collapse was like, they won’t have many memories of people rushing out to buy vacation homes. As the market has continued to grow and recover since its collapse, people have been purchasing vacation homes in greater numbers, and for good reason- having a second home in another geographical area is a great way to diversify your portfolio and enjoy living in another climate. With this being said, it’s important to take into consideration some best practices before buying such a home.
Choose the Location….Carefully
In 2013, 87% of vacation home purchasers planned to use the property primarily to get away with their families, and as a result, the average home purchase was 180 miles from the buyers’ primary residence. What you plan on doing with your home will play a major role in determining what type of home you’ll buy- if you want a home that you can rent out to other people, you’ll want to consider properties that in areas that have high tourism populations in multiple seasons. If you’re looking to have a home that’s easily accessible to friends and loved ones, you might want to consider purchasing one closer to your primary residence. These are just a few examples of situations in which you’ll need to alter your approach to the buying process.
Rent, then Purchase
As a good rule of thumb, always rent in different locations before purchasing a vacation home. There’s really no way to know whether you’ll want to stay in a particular area unless you’ve first vacationed there, and even if you could, it’d be a large gamble. Visiting a particular area in different seasons will help you identify the pros and cons of spending time in your vacation home in particular time frames, so consider making multiple trips throughout the year before buying.
Consider your Budget
Most people buy vacation homes with the purpose of getting away from their troubles, so buying one that’s outside of your price range won’t make much sense if it causes more stress than it relieves. Buying an overly expensive vacation home will also eliminate the possibility of having a property manager, and you’ll want to keep that option open. It’s significantly easier to upgrade to a larger house than downgrade to a smaller one, so err on the side of caution when it comes to pricing.
Be Realistic about Usage
It’s important to consider the possibility that you won’t use your potential home very much at all, whether it’s due to having too much work or too many weekend activities with the kids. If it seems unlikely that you’ll be taking advantage of your vacation home in its full capacity, you’ll want to consider working out a rental agreement with an owner to use their place once or twice a year, then allowing yourself to forget about it.
Understand the Taxes
Second homes can be more complicated than primary homes when it comes to tax consequences, so doing a full calculation of the tax burden is worth your time. If you plan on renting out the property, you’ll need to pay income taxes on your rental income, and property taxes might also run higher, depending on the geographical area.
Don’t Get Caught in the Moment
The idea of having a vacation home is definitely appealing, and one that’s worth exploring if you have the cash and time; however, buying a home when it doesn’t make sense to do so, be it due to low savings or having little extra time, is a mistake. Weigh all of your options carefully, and if you decide to buy, enjoy your new home!
Source: Money