Many who were thinking of vacation homes abandoned their dreams when the housing market collapsed. But now that house prices have risen monthly and the median has risen 20% from a low almost three years ago, you may be playing with ideas for that location on a lake, ski, or beach. Escape again. According to the National Association of Real Estate Agents, about 13% of homes purchased last year have been for vacation homes since 11% in 2012.
However, the fact that the market is stable should not allow the purchase decision to influence. Rather, follow these 7 steps to make sure your vacation home is just right for you and not a costly headache.
1. Choose the Location Carefully
This may seem obvious, but before you start shopping, you need to be able to specify exactly why you need this second home. The answer should shape the place you see. For example, according to NAR, in 2013, 87% of villa buyers planned to use the property primarily for family vacations. Therefore, the typical home purchased was on average 180 miles away from the buyer’s primary home. If your main goal with your loved one is to enjoy the home as a family together, you need to be in an area that is easily accessible to everyone and offers many activities of different age groups. Flying may seem trivial, but older grandparents and parents of young children may object.
As with 25% of buyers, buyers planning to rent a home to someone else may want to choose a location that has a lot of seasons for renting. (Probably whenever you want). When considering housing as an investment property, attention should also be paid to the expected growth rate of the community under consideration and the health of the local economy.
2. Rent Before Buying
Before trapping yourself, rent a place in the area you are thinking of to make sure you really enjoy it (multiple times is best). Stay for at least two weeks so you don’t get bored during your long stay.
Visit different seasons to understand the weather and crowd patterns. For example, you may not want to book an early dinner when you are there to relax during the peak summer season.
3. Purchase within Budget
Don’t fall into the trap of buying very unaffordable real estate. Buying a home that is too expensive to maintain each month causes stress, and most people go on vacation to get out of trouble. It also means that if you finally decide that you want to hire someone to run the place or take care of the garden, your budget doesn’t have a winding space to pay for it. Keep in mind that you can always upgrade to a bigger home in the future.
4. Think realistically about How Often you Will Use it
My wife and I have three children. When they were young, we bought a villa near our house. I use it all the time. But as the children grew older, we were visiting homes less. Weekend sports games, sleeping friends, church, and school activities had little time to get there.
Think realistically when you think about how often you can actually use the venue. It may be best to sign a rental contract with the landlord in the area, use your location a couple of times a year, and forget about it when you are not there.
5. Understand the Tax Implications
Don’t assume that you know that the tax impact of owning that property is based on your experience in your primary residence. The second house can be more complicated.
If you want to rent, you need to pay income tax on the rental income you receive. Property taxes can be higher than you currently pay, either because the tax rate in the holiday area is higher than where you live, or because it is a villa and not your primary residence. For example, taxes on the second house in Florida are often much higher than in a primary residence.
Qualified realtors will be able to provide details about local taxes and even tips on how to save money, such as shopping outside the city limits.
6. Conservatively Estimate Rental Income
Most buyers tend to be overly optimistic about how often they rent the place. Talk to your local vacation rental agency for the number of weeks you can realistically expect demand. Even winter and summer destinations, such as Lake Tahoe, cannot be expected to fill each year.
You also need a realistic estimate of how much the cost will affect your income. Let’s say the repair costs about 1.5% of the value of the house. Therefore, repairs require a budget of at least $ 1,500 a year for a $ 100,000 location. Each year, tabs can be higher or lower than the estimate, but this general rule gives you some flexibility year by year.
Also, second homes are often located in hurricanes and flood areas, often costly to insure, and often vacant, which can be costly, so pre-pay for homeowners insurance.
7. Don’t Get Caught Up in the Moment
Don’t be easily persuaded if a friend, family, or other investor gives you the opportunity to buy a villa or buy land with the desire to build a great home. The suggestion may sound romantic, but it quickly turns into a horror story. Sometimes people have different motivations. Also, they did their homework and did not discover that the expected transaction was really bad.
Take your time and take your time to investigate. Only continue after a thorough analysis of the numbers yourself. Sour events consume your money and your precious holidays.