Purchasing the Right Vacation Home

David Hatef

OWNING A VACATION HOME FULFILLS A DREAM FOR MANY, BUT MAKE SURE YOU KNOW THE REALITIES THAT COME WITH HAVING YOUR PERFECT OASIS.

Lazy beach getaways to an oceanfront bungalow. Weeklong ski trips to a cabin in the mountains. Whatever your dream, owning a vacation home requires a vastly different set of considerations than when you bought your primary residence. These are the key questions to ask yourself to ensure your dream investment is also a smart one.

CAN I AFFORD IT?

If you’ve arrived at a point to seriously consider a second home, you’ve probably taken steps to ensure you can handle another mortgage. However, many who get caught up in the excitement of buying a vacation home will forget there is more involved than just the house note. Insurance, taxes, fees, and maintenance are costs that don’t disappear with a second residence and often present a higher burden than your primary dwelling (especially if you buy in an area where natural disasters are common).

Taxes, in particular, are a surprise for many if the vacation house is in a different state. If you use the property for rentals, any income you receive also carries its own tax burden. HOA dues may play a role in resort-level neighborhoods where keeping up standards is critical to the aesthetic. If you do rent out the property, your return may not be as high as you hope, as employing a third party to oversee booking and upkeep will involve management fees.

Understand the full cost of your investment, because those additional dollars may impact the amount of house you can afford.

SHOULD I CO-OWN IT WITH SOMEONE ELSE?

One way to bring your costs down is to buy it with another family member or a friend who shares your same vision. Take emotion out of the proceedings, and don’t assume the bonds of family or friendship rise above financial considerations. Discuss with your potential co-owner every single detail, from costs and usage to contingencies should one of you eventually want to part ways with the deal. If you do move forward with a partner, make sure everything is in writing — and we mean everything, right down to house rules, guest policies, and usage time.

WHERE DO I WANT MY VACATION HOME TO BE?

Location, location, location.

Yes, you've heard it many times. And with a vacation home, this adage is uniquely critical. Unlike your primary residence, your second home represents where you want to be, not where you have to be. It's a crucial point that can get lost in the feverish search for a personal retreat.

Make sure you purchase in a place you love and will love coming back to again and again. Beyond your needs, if the house is to earn a steady income, buy in an area where others enjoy visiting again and again. Basing your purchase on a trendy destination that has only been popular for a couple of seasons is a poor investment. Buy in an established area that draws visitors year after year. This will ensure your second home is always a moneymaker.

If you're on the fence about committing to an area long-term, that’s a good indication you're not ready to buy.

HOW WILL THE HOME BE USED?

An often overlooked aspect of a vacation home is its use. If you rent it out, HOAs and local municipalities may have rules or laws that dictate rental policies. Be sure you understand what those are and whether they limit the property’s use.

​​​​​​​In addition to the implications of co-ownership noted above, realize that even a single owner can run into utilization issues. Too often a vacation home becomes a crash pad for family and friends. Lay out reasonable expectations about who can use the home and when. Even though the fiscal and physical responsibility falls to you, be prepared for the headaches that may come with having the coolest house in your family.

THE REALITY OF A DREAM

By no means should you be dissuaded from the pleasure that comes from owning a vacation property. Just be cognizant that amidst all of the good times, the responsibilities and costs of homeownership still exist. If you’re diligent about your research and go into it with realistic expectations, your vacation home will prove an excellent investment for you and your family for many years to come.

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