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Vacation Home Advice: 7 Considerations Before Buying

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Vacation Home Advice: 7 Considerations Before Buying
4 min. read

Image: goodluz / Shutterstock.com

Since the pandemic, a rising number of people have been searching for vacation homes. After all, if lockdowns are reintroduced, surely it’s better to do it on vacation. Not only that, but now that many people are able to work from home, getting away for a working holiday is easier than ever.

But buying a vacation home is not a simple transaction, and it’s worth considering the following points before deciding.

The Down Payment Is Big

While vacation home prices are generally lower than typical homes, the down payment required is normally much larger. Lenders are wary of financing a second home, and if you do need to take out a mortgage, you can expect to pay at least 25% for the down payment. However, it’s not unusual for this figure to increase to 35% or even 50%.

Calculating a Realistic Budget Is Essential

A quick search online may show you that vacation home prices aren’t too high, and may well be within your budget. Property prices in attractive areas will almost certainly rise over the years, but there are many more costs to factor in, and vacation homes aren’t always a solid investment. These additional costs add up, and you might find yourself struggling to pay for something you seldom use.

  • Utilities: your vacation home will also use up energy, and if you’re renting it out, don’t expect guests to go easy on energy consumption.
  • Taxes: besides property taxes, you might be required to pay a conveyance tax as an out-of-state buyer.
  • Insurance: like your primary home, it’s advisable to take out homeowners insurance on your vacation home. Indeed, many lenders will insist on it. Also, if you plan to rent your property out, you may be required to take out additional policies.
  • HOA fees: if your vacation home is part of a homeowners association, you’ll be required to pay fees.
  • Extras: consider the cost of decorating your vacation home, and fitting it out with the seasonal gear you’ll want to use, such as ski equipment or kayaks.
  • Property Management Services: see below.

Do You Need a Property Manager?

Leaving a home uninhabited for long periods can be a dangerous practice. It doesn’t take long for water damage from a burst pipe to cause major damage, while unchecked pest problems or damp can soon become a nightmare. Hiring a property manager can help avoid these issues, but there will be an extra cost. If you plan to rent out your property, a property manager will almost certainly be essential.

Buying with Friends or Family Requires Communication

Many people choose to split the cost of a vacation home with friends or family, with the understanding that each contributing party will be entitled to use the property. However, communication is key from the outset, from deciding on how the financing will work, to organizing who uses the home at what time. It’s also important to settle things like house rules and rentals in advance, and if you’re not on the same page, it’s perhaps not a good idea.

Location Matters

It’s important to think long-term when considering the location of your future vacation home. Will you need easy access to hospitals, for example? Can you imagine spending all of your vacations in this area, or will you long for something different a few years down the line? Also think about how you will get there; if it’s a long journey, will you be inclined to keep making that trip as the years advance?

Will You Spend Much Time There?

This is tied in with location and also requires you to think long-term. Do you want somewhere that you can visit most weekends? Or somewhere far from home so you can truly escape? Do you intend for your vacation home to become your primary home once you retire? Or will you spend just 20 days there per year? In the case of the latter, it might be best to rent other people’s properties and let someone else take care of all the additional stress and costs.

You Can’t Always Rely on Rentals

In a popular area, it’s likely that the rental market will be extremely crowded and competitive. Besides advertising, you’ll probably need to pay for a property manager to ensure that everything runs smoothly, and that your property is safe. As a result, any profit margins are quickly trimmed down.

Lenders may also require you to take out an investor type loan rather than a standard mortgage if you plan to rent, and you’ll need extra insurance. It’s also essential to consult the local community and HOA and check that you’re allowed to rent. The best advice is to not rely on renting your property out, and consider it a bonus rather than a necessity.

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