Vacationing is much like a summer fling: fun, romantic, and only temporary. But owning a vacation home is like being in a strong relationship; it’s cozy, low-maintenance, and built to stay. How do you determine whether a potential vacation house is “the one”? Think about the following:
How Far Can I Travel?
If getting away quickly is crucial, focus your search on locales you can get there easily and economically. (Vacation homes are often 180 miles from the buyer’s regular house.)
And consider the type of traveler you are: Do you believe the journey itself is the goal? Or are you an anxious traveler who can’t wait to get to the exciting part?
How Often Will I Use the Vacation Home?
Every Sunday? Every month? When do you have the children in July? The home should be more pleasant as you use it more frequently. If you want to spend the summers there, air conditioning or a waterfront position may be desirable; if you anticipate numerous ski weekends, be sure the property has insulation and adequate windows.
You would assume that living in squalor without a dishwasher or air conditioning is fun. However, making economic decisions might come back to haunt you when you try to sell your “rustic cottage.”
Can I Afford a Vacation Home?
If you’re like most people, money is an object. Decide on your pricing range and stick to it, just as you would with any other purchase. You will be guided through the process if you work with a real estate agent familiar with the region where you want to live.
Most banks normally need a 20 percent down payment for mortgages on Shangri-Las. Lenders also want to verify that your total debt, including new and previous debt, does not exceed 36 percent of your income. Certain lenders may slightly exceed that debt-to-income ratio for their most creditworthy clients exclusively.
Taxes, utilities, insurance, and upkeep are all monthly expenses that are essentially the same for homes and vacation properties. Some will require extra homeowner association dues and resort fees. So even if real estate may sing to your soul, be sure it is within your means.
Will I Rent it Out?
If you want to rent out your vacation home while not using it, search for a home in a neighborhood popular with other tourists. While coastal and spa homes frequently have year-round appeal, residences near ski resorts and golf courses have a seasonal attraction that fetches premium rentals for a portion of the year. Is the location suitable for family get-togethers, or is it a romantic getaway for two? How much you may charge will primarily depend on the size and location.
This is a birds-eye perspective of renting out a vacation home.
Pros:
- Rental incomes help you cover the cost of your guilty pleasure.
- Renting a vacation home for more than 14 days a year creates a tax shelter that allows you to depreciate the property and deduct some expenses.
- Renting a vacation home, you’re planning to sell can help you weather a hostile market.
Cons:
- Your carefree days as a vacationer give way to the responsibilities of an innkeeper who deals with reservations and the demands of guests.
- You’ll need to clean (or hire cleaners) after guests leave.
- Tax regulations are complicated, and the more you use your vacation home, the less of a tax shelter it becomes. Getting advice from an account may save you a lot of headaches.