Summer is that time of the year when you may be thinking about buying a vacation home. The idea of investing in a property at your favorite destination you love and enjoy is rather tempting. After all, there are many good reasons to buy a vacation home.
If you purchase a vacation property, you’ll no longer need to pay high rental prices. Your home-away-from-home will provide you and your loved ones a personal space to escape to. However, buying a vacation home is a major financial move and there are important considerations. Here’s what you need to know if you are thinking of making an offer on a vacation destination.
The first and foremost factor in choosing your vacation home is the location. You need to understand your expectations. Get to know the area well enough to decide whether or not it meets your house-hunting checklist. A common mistake made by buyers is choosing a place they cannot get to frequently because of the distance.
If you’re looking for a simple weekend getaway, then choose a place within close proximity. This way you won’t have to take long periods off from work. If you have ample time and finances, going for a little far off location may not hurt either. Also, you must spend enough time at the place to reach the conclusion that you want to keep coming back there. Ideally, you should opt for a property you can enjoy for many years. Planning for long-term enjoyment means purchasing a property spacious enough for a growing family. Also, it should be in an area that offers wide-ranging recreational activities to accommodate evolving interests.
This is by far the most important factor in the vacation home decision-making process. Take time to review your finances and determine your budget. Have you paid off your current home? Would you have readily available cash in case of an emergency? Are you saving some percentage of your income for retirement? Are you out of credit card debt? These and several other factors need to be taken into account before you make up your mind. Your financial position should support not only the payment of the property but other costs that come along with it. These include insurance, utilities, Homeowner Association (HOA) and condo fees, taxes and furniture, etc. If you intend to go for joint ownership make sure the other party is equally serious to buy a home with you.
If you intend to earn rental income via your vacation home, you should discuss this with your mortgage specialist in advance. In such a scenario, a lender may have a requirement that you obtain an investment type of loan rather than a conventional one.
You should also get in touch with a reliable real estate agent who can guide you about property rental laws and restrictions of the particular town, community, state, etc. Have a thorough knowledge of what the rental market commands in the area you plan to purchase. There are a number of factors that influence rental prices and you must be well-informed about them, especially if you are depending on that income to offset the cost of the property. Besides, you also need to keep a margin for the fees of your real estate agent, property advertisement, etc.
Another aspect that must not be overlooked before buying a vacation home is maintenance. Will you be able to manage and maintain it yourself or would you need someone to do the task for you? If you don’t live nearby, managing a vacation rental can be quite difficult. There are too many things to be looked after, ranging from repairs to lockouts and cleaning between renters. If self-managing is not an option, consider hiring a well-reputed property manager. They may charge a high fee for the job, but it’s definitely better than the damage and hassle caused by a leaky roof or a frozen pipe (especially if it goes unnoticed for a long time period).
Buying a vacation home is not a decision you can take recklessly. It demands research, planning, and a lot of money. You should be well aware of the risks involved and take all possible measures to safeguard against them. Economic downturns and natural disasters are some of the risks to consider. The demand for a beach or waterfront vacation home may be high, but they are also at a higher risk of hurricanes, flooding, etc.
Location is of pivotal importance. Pick one with a high occupancy rate throughout the year because that is the key for consistent and positive cash flow. You should be able to get a rental rate high enough to cover the mortgage. Analyze properties similar to the one you plan to buy to get a good idea of the profitability of the real estate market. Also, run a check on the criminal history of the area. Lastly, no matter what and where you decide to buy, make sure your insurance company covers everything.