Has buying a beach bungalow, a cabin in the woods, a mountain hut, or some other retreat been running through your mind like a non-stop loop recently? Can you hear the ocean’s salty breezes, balsam-scented pine trees, and majestic mountain vistas calling your name? Then you have pretty compelling reasons to answer their calls. Now, if you add to that the financial rewards of owning a second home, an active real estate market, and mortgage rates that are still hovering around historic lows, the reasons become that much more compelling. However, before you pull the trigger, you need to take a step back: there are some essential things you should know before buying a vacation home.
1. Weigh the pros and cons
For starters, it’s a big decision. So, you can’t just sign on the dotted line or plunk down all of your hard-earned cash before considering the positives and negatives first.
We’ve already mentioned some pros like good mortgage rates. But you are also probably aware that a vacation home is an investment. With time, it will increase in value, and you’ll be able to sell it for substantially more than you purchased it for. What’s more, you’ll earn extra income by renting it out and save on your vacations. But, it’s not all about money, is it? Such a decision provides you with a place to relax and recharge, thus significantly boosting your quality of life.
But there are some downsides as well. For one thing, buying a vacation home is expensive. And this is not only about the down payment, but you’ll also need to pay more taxes, fees, and maintenance. Finally, you might find yourself wishing for a change of scenery after a few years when its novelty has worn off.
2. Make sure you’re financially ready
If you’ve made up your mind, let’s move on. Purchasing a second home requires, before anything else, some financial planning, starting with devising a savings budget. Homeowners usually learn a great deal from their first home buying experience. So, you probably already know that you need cash to make a down payment and pay the closing costs. You also need some money squirreled away for things like repairs and maintenance. When it comes to a second home, the numbers may display differently.
So, ask yourself this: can I afford to take on an extra house? Consider whether or not:
- you can pay cash,
- your primary residence is already paid for,
- you’re saving 15 percent of your income for retirement,
- you have a 3-6-month emergency fund in place,
- you’re saving for your children’s college.
You also need to be able to afford the ongoing expenses, such as associated taxes, insurance, utilities, HOA and condo fees, as well as some other items like seasonal gear and furniture.
There’s no point in running around scouting properties when the price tag is beyond your reach, and you don’t qualify for the purchase. That’s why it’s always best first to get your ducks in a row and set a clear budget. If you need help devising your budget, have a chat with a reputable broker in your area about finding good loan programs and rates, and work out what works best for you.
3. Know what you expect from a vacation home
Next, you need to work out some details. This may sound obvious; however, before you start scrolling through vacation property listings, you should be able to specify what precisely you want or expect from a second home. Is peace, quiet, and privacy your top priority? Or perhaps being closer to the hustle and bustle is more your cup of tea? Do you need boat access, a dock, or a boat slip? Is proximity to a hospital or urgent care center a must? If you’re buying in a metropolis such as NYC, then you will probably end up with an apartment, possibly with limited square footage. And if you have excess belongings, you may need extra storage. Then you need to pick a property that you love and that is close to a safe facility in NYC. In any case, answering these questions should shape where you look.
Similarly, your lifestyle is an essential factor when deciding what type of vacation home to buy. For instance, will you feel more comfortable in a cozy quaint cottage or a luxury high-rise condo?
Think about your needs and must haves. That will help you to pinpoint the perfect location for your second home.
4. Getting there
Next, you need to figure out how you’ll be getting there. How easy or difficult will that be? There’s a difference between a quick jaunt up the freeway and flying in through the closest airport. Will you need train or boat access? Is suffering through sitting in a traffic jam something you’d be willing to do? Or will it be more trouble than worth? These are all questions that need answering before you choose the location.
5. Be realistic about rental income
After buying a vacation home, do you plan to rent it out while away? Then you need to feel the pulse of the rental market and know what it commands in the area you’re buying. Rental prices depend on many different factors, and the last thing you want is to come up short – especially if you’re counting that your rental income will offset the property costs. The costs of letting your second home include property management, advertising, repairs, etc.
Planning on rending out your holiday home? There are some expenses you need to be ready for.
6. Always protect your investments
If you’ve made up your mind about buying a vacation home, you need to make sure you can protect it. For example, a time may come when you aren’t able to break away and visit your home away from home for a more extended period. And, since it’s never a good idea to leave your property unattended for a lengthy period of time, you should seriously think about installing a security or surveillance system or hiring a property manager to drop by from time to time. Considering things like these can give you peace of mind while away.