The decision to purchase a vacation home for yourself or your family can be one of the most critical ones you will make in your life. It can sometimes take a lifetime’s worth of experience to understand the ins and outs of the real estate market, and many potential luxury home buyers can feel like there’s a mountain of details to traverse before the house key is in their hands. But it’s up to the buyer to make that oh-so-important decision. Read ahead to learn more before buying a second property or a Skaneateles vacation home of your own.
Be realistic about the pros and cons
The first step to deciding if now is the time to purchase a vacation home is to stay grounded throughout the process. Odds are, you’ve been mulling over the benefits and downsides of investing in a second home for a long time. That’s a good attitude to maintain as you get closer to decision time. Here are some of the many pros and cons you should keep in mind:
Renting the property can give you a stream of passive income throughout the year, especially if it’s located in a high-traffic part of the country.
If you enjoy planning vacations, you can save a lot of time by purchasing a home that takes the guesswork out of the equation.
Vacation homes have a habit of boosting quality of life, especially if your family lives in a high-stress environment.
Make sure you’re confident about the location because you’ll have little chance to change the scenery once you’ve made the purchase.
Don’t forget the mental investment you’ll need to make to keep up a second home. These difficulties can multiply if your first home is hours away.
The purchase price is just the first cost you can expect to pay. Renovations, repairs, and seasonal maintenance fees are only a few hidden costs that vacation homeowners have to deal with.
Be aware of hidden costs
Speaking of costs, it’s important that vacation homeowners know the hidden charges involved in owning vacation homes. Luxury homes are naturally more complex and demanding to maintain than other properties, and hidden costs can sometimes make up one of the largest portions of your budget if you don’t plan correctly.
First, make sure to consult with a local real estate agent who has access to a wide network of contractors who can offer estimates on maintenance fees for all four seasons. These charges can climb if extreme cold or heat temperatures are widespread in the area. Also, ask yourself if you are going to need new appliances. Does your family require special amenities or accessibility features?
Those costs can add up quickly. Maybe the property is located in an area regularly hit with pests, mold, or decay. There are lots of factors to weigh. If you’re planning on renting the home, consider cleaning costs as well. The best policy is to stay in touch with local agents before investing in a second home.
Consider the down payment
Among the many costs that vacation homeowners should plan for, perhaps the most important is the down payment. Many people have paid anywhere between 10%-50% without a cash payment upfront for their second home’s first installment. Vacation home mortgage lenders are generally more reluctant to do business with clients whose financial health is questionable. That’s why it’s worthwhile to check your credit score now and judge where you expect to be in one to three years.
If your finances are stable and now is the best time to invest, don’t forget to think about rising property values or a change in demand for vacation home rentals. Make sure to factor in a buffer of 2% of the home value to account for any significant swings in the local market. While it can be safer to invest in vacation homes in neighborhoods with historically high property values, anything can happen.
Calculate potential property taxes
After the down payment, the next place to turn is the potential tax benefits and drawbacks of investing in a vacation home. Read up if you can apply for a mortgage interest deduction first. Vacation homes are taxed differently than primary homes, too. All the profits you gain from selling a second home count as capital gains as well.
What about rental options?
We’ve mentioned the possibility of using your vacation home as a rental property. It’s worth repeating that there are pros and cons to following this line of reasoning. Some primary considerations include:
The popularity of online vacation home rentals has skyrocketed in the last five years, and this trend shows no signs of waning.
Renting a vacation home on Airbnb has yielded an average profit just shy of $1,000 per month for homeowners in the U.S.
You can cater to a specific pool of renters by offering exceptional amenities, accessibility options, and fun features that attract high-value clients.
- Rental laws and regulations vary from neighborhood to neighborhood, as they are among online property rental outfits.
Renting vacation homes in locations with a dynamic or potentially hazardous climate can fetch higher insurance rates.
Above all, it’s important to be honest with yourself and to share your financial information with a local real estate agent well in advance of purchasing a vacation home. Owning a second home is one of life’s great adventures, but you want to be in a good position before you start.