Purchasing a vacation home is a big investment, and one that requires extensive research and preparation. Before purchasing your dream vacation home, make sure you take these factors into consideration.
Have a budget, and know what you can afford.
The cost of owning a vacation home is never the price of the home itself. It also includes associated taxes, insurance, utility costs, cleaning services, and HOA fees. Not to mention all the furniture, decor, entertainment, etc. needed to fill the space! Give yourself an ample amount of time to review your current mortgage and overall financial situation, so you can set yourself up for success.
Know where you want to be.
Think about exactly what it is you want from your vacation home. Do you want somewhere with peace and quiet? Or do you want to be close to a downtown area with buzzing nightlife? Do you want to be somewhere tropical or chilly? You’ll also want to make sure you do extensive research on the area. What are the property taxes like? What is this area projected to look like in the next 5-10 years? You’ll want to make sure you know the area just as well as you know your home area. You should also consider the long term intent of the home. Will this be used for Airbnb’s? Or are you looking to purchase a home for retirement? Having a good idea of the use of the home will help you determine the best location.
Seasonality is a big factor when considering a vacation home. If you’re planning on renting it out, your success could be dependent on seasonality. For example if you purchase a home in the mountains in an area that is known for skiing, you may only have profitable success in the wintertime. Or if you purchase a home in Cape Cod, you may only be successful booking renters in the summer months. Make sure you know who what travelers you’re targeting, and what areas are best suited for them. If you’re planning to purchase the home for just you and your family, you’ll have a bit more flexibility in deciding a location.
Determine how it will affect your taxes.
The NATP states that homes rented out for less than 15 days during a given year are considered personal-use property by the IRS. This means owners aren’t required to report rental fees as income, and no other deductions are allowed (besides mortgage interest and property taxes). So if you’re deciding to rent out your vacation home for more than 15 days, get ready for a lot of paperwork!
Look into shares or joint ownership options.
Going in on a property with a close friend or relative can be a good option if you’re looking to save some money. However this can get messy if things go wrong, so make sure you have all legalities documented on paper.
If you’re thinking about purchasing a vacation home and have questions regarding your mortgage and other finances, Equity Mortgage can help! We’d love to help you sort through your finances and see if purchasing a vacation home is right for you. Contact us today!