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The best vacations untangle us from our daily schedules, worries, and responsibilities.
There’s every reason that you’d want to keep that good feeling going indefinitely. Whether you have a go-to vacation spot or have fallen in love with a faraway place on a spur-of-the-moment getaway, you’ve likely dreamed about spending more time there. Purchasing a second home can be an excellent way to save on vacation costs, earn extra income, and claim your own slice of paradise. However, the realities of owning a vacation property don’t always match what you see in that glossy brochure.
If you’re getting serious about purchasing a second home, consider these six factors before making the leap.
- Finances. First, ask yourself, “Can I really afford a vacation home?” Carefully inspect your personal finances—this includes your entire portfolio of expenses, savings, and investments. Will you be able to purchase a second home comfortably and without compromising your financial future? Speaking from a fiscal perspective, you’re likely ready to purchase a vacation home if: 1) you have enough cash to pay for the property outright; 2) are saving adequately for retirement (15% of your income is recommended) and any children’s college funds; and 3) have an emergency fund that will cover 3-6 months of your current expenses.
- Location. Are you interested in an ocean- or lake-side property? If your second home will be close to the water, expect to pay a higher premium for home insurance than you would for a property that is more inland. Are there earthquakes or other natural occurrences that could raise your rates? Homeowner’s insurance policies can vary widely by state. Be sure to call an insurance agent familiar with your desired area to get a good idea of what your second home’s insurance plan might cost and cover.Next, consider the surrounding neighborhood and amenities. Will you be able to walk to the nearest Starbucks or convenience store? How far away will your vacation property be located from your primary residence? Traveling far distances by plane, train or automobile a few times a year might be doable, but consider what you’d do if something goes wrong with your second home. Pipes burst, HVACs break, power goes out—will you be able to get there in a timely manner if needed? Conversely, think about how quickly you could return to your primary home in a similar situation.
- Longevity. Is this vacation home going to be able to meet your needs in the long term? Consider whether you might grow bored of the area or if there is plenty to see and do. If the home is located in a tourist-laden town, will that start to wear on you over time? Think about the home’s layout and if it will work for you and your family as you grow and age. For example, the loft bed in a lake-side cabin or the spiral staircase in a beach condo might appeal to you now, but consider if this will hold true a decade from now.If you aren’t 100% ready to commit, instead or purchasing a property right away, consider renting in the area for a few seasons. Doing so can give you an idea of what it’d be like to go to the same place year after year. While renting won’t earn you equity, is far cheaper than buying a property that you don’t end up liking or using nearly as much as you thought you would.
- Expenses. Owning two properties doubles the responsibility of homeownership. Your vacation home will bring on a new set of monthly costs, such as utilities and any extras like phone, internet and cable/streaming services. If the vacation property has a decent-sized yard, think about how you will manage its maintenance and upkeep. Take into consideration the cost of any professional services you will need to hire out, such landscaping, property management, and cleaning. There are other costs to consider as well, such any homeowner’s association (HOA) fees and trash collection services. Of course, you’ll also be on the hook for annual property taxes, which might be quite different from the ones you pay for your primary residence. To avoid any unpleasant surprises, familiarize yourself with the local tax laws where your vacation property will be located before you buy.
- Age. Consider the age of the home. Are you willing to renovate or spruce up a fixer-upper or are you seeking a newer, turn-key property? While older properties may be more affordable and charming, newer properties can be less of a hassle to manage. The wiring, plumbing and appliances will be newer and less likely to need immediate repairs or replacement. Whether the property is brand new or old, plan to set aside 1-2% of your vacation home’s purchase price to cover basic annual maintenance and repairs. Put this money aside each month so that you’ll have an emergency cushion. You never know when you’ll need to patch a leaky roof, replace a cracked driveway, or fix or replace appliances.
- Rental Income. An undeniable bonus of selecting a vacation home as your second property is the possibility of rental income. But you shouldn’t assume that this income will be guaranteed. Get an honest picture if you’re likely to rent out the property as often as you imagine or if it will sit vacant for most of the year. Talk with a reputable real estate agent who is experienced with rental properties in your desired location. He or she can give you a more accurate idea of what you might expect in terms of occupancy and rental income.If you determine that your property is rentable, there are some additional costs to consider. You’ll want to get an idea of how much it will cost to advertise your vacation rental yourself or through a property management company or realtor. If and when you do rent out your space, you may want to pay for a storage locker to store certain items that you don’t want renters accessing. You’ll also need to consider the additional wear and tear that renters put on items such as carpeting, which you may need to replace more frequently than if you were the only occupant. If you’re providing soaps, detergents, toilet paper, and other consumables for your renters, you’ll also need to budget for replenishing them. You’ll need to subtract these costs from any rental income that you hope to collect.
Are you ready to buy a vacation property?
Making your dream of owning a vacation home a reality takes serious thought. While there is a lot to consider, a second home can be an excellent investment that gives you the added bonus of personal enjoyment.
Certified Title is here to offer helpful insights and valuable resources that enhance all types of real estate transactions. For more information about purchasing your perfect vacation home, please contact our knowledgeable professionals.
About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for their industry-leading reliability and exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.