Questions to Ask Before You Buy a Vacation Home

Questions to Ask Before You Buy a Vacation Home

Martha Loveless of Loveless Real Estate Services
The Best Carmichael Realtor | HomeSmart ICARE Realty 916-.270.7081
Homes for Sale in Carmichael / What’s Your Carmichael Home Worth?

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Are you thinking of buying a vacation rental? Well, before you do, ask yourself these simple questions…

Where’s a good place to buy?

Buying a vacation home is a bit like getting married: After enjoying the destination as a casual visitor, it’s time to make a long-term commitment and settle down.

Choosing where to buy depends largely on where you live, what you can afford, and whether or not you will rent out the property when you’re not using it. So before saying “I do,” give some serious thought to these core issues:

How will you get there?

According to the National Association of Realtors (NAR), more than 80 percent of vacation-home buyers choose locations within driving distance of where they live, with about half of all owners opting for properties within 50 miles of their primary residence. Proximity to your home is especially important if you plan to visit the property frequently. Much as you loved your trip to Fiji, you’re not likely to fly to the South Pacific for a three-day weekend.

Will you need rental income?

NAR statistics show that most owners of vacation homes do not rent out their properties, but if you can’t quite make the mortgage payments without some rental income, it’s best to choose a popular destination where demand for short-term lodging is high. Experts say the most desirable spots are near oceans, lakes or rivers, or at mountain recreation areas.

Will the location suit your future lifestyle?

While vacation homes can gain value over time, the NAR advises that short-term speculation on residential real estate is risky business, and most buyers settle on a property they’ll enjoy for many years to come. Planning for long-term enjoyment can mean buying a place that’s big enough for a growing family, or choosing an area with a range of recreational opportunities to accommodate evolving interests.

Mountain biking may be your current obsession, but what happens if you decide to take up golf or fly-fishing? And if you’re buying a home for future retirement, be sure to look for the kind of structure and location where seniors can live comfortably. Thirty years from now, will you want to climb stairs to reach the master bedroom, or drive a rutted dirt road to your rustic cabin in the woods?

Can you afford to buy a second home?

Crunching the numbers is a crucial first step for anyone who’s thinking about buying a second home. Otherwise, that dream vacation getaway could become your worst financial nightmare.

Key factors include:

Financing

Mortgage companies may charge higher interest rates and/or require higher down payments for second homes, but there are creative ways to finance the deal without dipping into your child’s college savings plan. It’s often possible to leverage the equity in your first home, or even divert pretax funds from an IRA. It’s wise to seek assistance from an experienced mortgage broker instead of dealing directly with a single lender.

Insurance

There’s a flip side to the bucolic settings and quaint seaside communities many buyers crave: The most desirable areas may have a higher risk of natural hazards such as hurricanes, floods or forest fires, so insuring that little slice of paradise could easily leave your budget in ruins. To avoid unpleasant surprises during escrow, get several insurance quotes before making an offer.

Maintenance

Buyers often underestimate the cost of maintaining a home, particularly when it comes to roof jobs, exterior paint and other pesky long-term projects we all like to avoid. A good rule of thumb is to set aside about 2 percent of the home’s value each year for maintenance. For professionally managed rental properties, buyers should expect the management company to pocket anywhere from 20 to 50 percent of the rental income.

Is it a smart investment?

Recent figures from the National Association of Realtors show an upward trend in the number of second homes purchased for investment purposes, with rental properties outnumbering vacation homes by a wide margin. Property values do fluctuate, of course, but sinking a portion of your net worth into residential real estate can be a great way to diversify your portfolio.

When you do invest in a vacation home, it’s wise to look for a place that has value as a part-time rental property as well. Find something you like that you also can rent out, because most of the time you’re not going to be able to use it as much as you think.

How will a second home affect your taxes?

Just like your primary home, a vacation home is likely to have a major impact when tax time rolls around. According to the National Association of Tax Professionals (NATP), mortgage interest and property taxes on first and second homes alike may be claimed as Schedule A deductions, but to avoid unfriendly encounters with the IRS, buyers should be aware of some important differences in the way second homes are taxed.

Courtesy of www.HGTV.com

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What’s my Carmichael Home Worth? Call us today at 916-270-7081 for a free consultation or log on to www.HomeValuesinCarmichael.com to find out.

Martha Loveless
916.270.7081
The Best Carmichael Realtor
www.LoveSacMetroHomes.com