dearJulius.com

Questions to ask before buying a vacation home


By David McMillin, Bankrate

If you're weighing the pros and cons of buying a vacation home, you're not alone. As of May 2020, second-home buyers and investors accounted for 14 percent of home sales, according to the National Association of Realtors. Before you move forward with plans to buy a vacation home, here are some of the major implications to consider.

Should I buy a vacation home?

The easy answer is yes - after all, who wouldn't love the chance to own a place to escape the worries of a regular routine, or an opportunity to turn a profit? However, there are plenty of additional follow-up questions to address.

Can you really afford it?

Aside from making the purchase upfront, a vacation home isn't a vacation away from the typical costs of being a homeowner. It's important to ask yourself if you can financially manage the added expenses of owning a vacation property.

"With a second home comes additional annual property taxes," says Hayden Adams, director of tax and financial planning at the Schwab Center for Financial Research. "Beyond taxes, there will be insurance, maintenance costs and potentially HOA fees or assessments for improvements if the second home is a condo."

Insurance costs on a vacation home alone can be quite high. According to the Insurance Information Institute, insuring a second home can cost more than protecting your primary residence, and the cost can vary depending on the location of the home (and whether that necessitates coverage for flooding or other hazards), the kind of property and whether there are features like a pool or spa.

If you're thinking about buying a vacation home, though, chances are you feel comfortable with your personal finances - but, a second home isn't without risks. In a 2019 Federal Reserve Board working paper, researcher Daniel Garc'ia points out that vacation property purchases played a major role in the financial fallout of the late 2000s.

"Second-home buyers were typically over-leveraged," Garc'ia writes, "and despite having middle to high income and credit scores, experienced higher default rates than average during the recession."

How much time will you be able to spend there?

Consider your calendar. How much vacation time can you take advantage of in your current work situation? If you can handle your job duties remotely, perhaps the vacation home will serve as more than a weekend getaway destination.

How long will it take you to get from your primary residence to the vacation home? If you can hop in the car and arrive in a few hours, that easy access will translate to plenty of use. If getting there requires advance planning and airport hassles, the home may sit empty more than you expect.

Who will look after the home when you're not there? In addition to insuring the home, you may need to find someone local who can check on the property to make sure that nothing major - burst pipes, insect infestations or vandalism, for example - has gone awry.

Will you rent it out?

There's another set of considerations if you're buying a vacation home with the intent to rent it out when you're not using it. Be sure to investigate local rental laws and consider consulting with a real estate agent or attorney in the area. With Airbnb increasingly popular, some lawmakers have restricted short-term rentals in certain spots.

When rental activity is good, the income from a tenant can help cover some of the extra costs of your second home. However, Adams says that "there are a host of tax issues with a rental property. For example, if you rent and make a profit, you may need to pay ordinary income taxes and possibly the 3.8 percent net investment income tax. If the rental property loses money, some owners may qualify for a tax deduction, but these rules can be complex."

Also, are you planning to eventually sell the property? If you do, Adams says you may pay capital gains taxes, as well. He recommends consulting a tax professional prior to buying a vacation rental home so you know what you may be liable for.

Benefits to buying a vacation home

The clear benefit to buying a vacation home is the ability to spend more of your time in a place where you can unwind. Rather than paying to stay in a hotel each time you visit, you'll enjoy the comforts of your own abode.

Those comforts can create a profit engine, too. A 2019 survey of more than 7,000 vacation homeowners who listed their property on vacation rental site Vrbo revealed that about 40 percent used the rental earnings as a source of secondary income.

Drawbacks of a vacation home

Spending more time on vacation and collecting rental income are great perks, but there are downsides to owning another piece of property, as well.

"People tend to overestimate the income a rental property will generate and to underestimate the costs and headaches of managing the property," Adams says. "They may be surprised that the rental property ends up being a net drag on their finances."

Additionally, while you may love the location of the home now, will it restrict your globetrotting adventures elsewhere?

"People should consider the alternative costs to a second home," Adams says. "Most people only have a limited amount of time off and may not want to spend all that time at a vacation home. The funds used to purchase a second home could be used to travel rather than pay for a second home."

Next steps: How to finance a vacation home

If the pros outweigh the cons and you're ready to buy a vacation home, it's time to think about the best approach to pay for the property. Adams says that paying in all cash can be a good way to avoid interest costs, provided that making a huge payment doesn't affect your overall lifestyle.

"However, a lot of people don't have the means to do an all-cash purchase and trying to do so could leave them without a much-needed emergency fund," Adams says. "A mortgage can leave less of your cash tied up long-term, which means those funds could be invested for potentially greater returns."

If a mortgage is the better option for you, shop around for the best interest rates you can find, as they'll likely be higher than the rate for the mortgage on your primary residence. Look for a local lender in the area you hope to buy in, as well - the company may specialize in second-home financing and can recommend the best type of loan for your purchase.

See more at Bankrate

|Featured Content_$type=three$c=3$l=0$m=0$s=hide$rm=0


A Part of Julius LLC
Made with in NYC by Julius Choudhury
Name

Banking,12,Bills to Pay,41,Bitcoin,2,Companies,7,Credit Card,11,Cryptocurrency,1,Debt,2,Emergency Fund,1,Entrepreneurship,1,Featured,47,Features,19,Home Improvement,12,Insurance,18,Investing,42,Marketing,1,Markets,23,Money,7,Mortgage,3,Office Improvement,1,Personal Finance,311,Personal Loan,2,Real Estate,165,Retirement,36,Save Money,23,Saving and Investing,9,Saving and Spending,16,Savings,4,Small Business,284,Startup,12,Student Loan,2,Taxes,56,Tips and Tricks,2,Top Stocks,2,Warehouse Improvement,1,
ltr
item
Finance Magazine: Questions to ask before buying a vacation home
Questions to ask before buying a vacation home
Before you move forward with plans to buy a vacation home, here are some of the major implications to consider.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDUU9tdKTgGCpL8hdM0ykGQNFDqiAzmFEL9cdIYo12a3I2GAc3cXSjJRDWQNYSr2LaIeMkLRqzG-HPx-VkTuGqFNQiW00EAN5VG4q-EtdbdAksb1Bg0PCZiP5yNwRIAkAxXCI52qkaWIA/s1600/vacation-home.jpg
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDUU9tdKTgGCpL8hdM0ykGQNFDqiAzmFEL9cdIYo12a3I2GAc3cXSjJRDWQNYSr2LaIeMkLRqzG-HPx-VkTuGqFNQiW00EAN5VG4q-EtdbdAksb1Bg0PCZiP5yNwRIAkAxXCI52qkaWIA/s72-c/vacation-home.jpg
Finance Magazine
https://finance.dearjulius.com/2020/08/questions-to-ask-before-buying-a-vacation-home.html
https://finance.dearjulius.com/
https://finance.dearjulius.com/
https://finance.dearjulius.com/2020/08/questions-to-ask-before-buying-a-vacation-home.html
true
2765933497744639011
UTF-8
Loaded All Posts Not found any posts VIEW ALL Read More Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy Table of Content