Top Tips for Buying a Vacation Home
Have you dreamed of owning a vacation home? Have you fallen in love with an area that you've returned to year after year with hopes of spending more than just a couple of weeks a year there? Or maybe you are looking ahead to your retirement years and planning for where you'll be spending your time. You're not the only one.
With the stabilization of the real estate market and home values on the rise, you may be thinking that it's time to make your vacation home dream a reality. In fact, vacation home sales rose 57% in 2014 over the previous year and vacation home sales ranked in at 21% of all real estate transactions.
A stable real estate market is not the only consideration when it comes to buying a second home. Here are a few tops tips to consider when buying a vacation home so that your dream doesn't become an expensive nightmare.
Location, location, location
What are your goals for this vacation home and what is its primary use going to be? If it's for you, your family and your extended family to use first and foremost as a vacation getaway, be sure it's easily accessible to everyone who plans to visit. Check out the area's activities, attractions, and things to do in order to make sure it's appealing to a wide range of ages and interests.
If you're in the 25% of those who choose to rent out their vacation homes, you want to consider how attractive the location and the home will be to future renters. Do people love the area enough to consider it as a vacation option? Will the home have the accommodations vacationers seek? You also want to consider the rental seasons, the more the better, so that you're not just limited to using it or renting it 3 months out of the year.
Rent before you buyThe best way to get to know the area you're interested in is by staying there. Try out a few vacation rentals in different areas and get first-hand experience on what to expect. What do like? What do you dislike?
Try staying during different seasons and various times throughout the year to get a feel for what it's like. Stay for extended periods to make sure the area offers what you desire in a vacation getaway and maintains your desire to be there.
Vacation home first, investment secondWhether you plan to use your second residence as a vacation home primarily or as an investment, experts agree that it should be viewed first and foremost as a vacation home. An investment property is just that, and investment, and therefore comes with inherent risk.
Consider this advice from certified financial planner Sophia Bera, founder of Gen Y Planning:
"Real estate can be a wise asset-allocation play—it's an investment not correlated to stocks, but consider the following: The recommended allocation to real estate in an average investor's portfolio is (or should be) a much smaller component of their asset allocation, whereas a second home is a disproportionately large, illiquid asset being added to the mix. So if your motivation is price appreciation alone, you may be better served in the stock market, said Bera. And real estate is far less liquid than equities. In a financial pinch, you may not be able to sell your second home quickly at fair market value. In fact, it could take years."
With that being said, it is a way to earn extra money and can be a profitable investment if done correctly. You need to be the number one renter of the property. It really boils down to you and your family using the vacation home enough to justify the cost of maintaining it.
Stay under budgetYou should be considering buying a home from a position of strength and not on taking a gamble. Your personal economy factors in much higher than the current U.S. economy. Buy wisely and buy under your budget in preparation for unexpected costs that can lie ahead of you. The last thing you want from a vacation home is mounting stress month after month. It's your haven, don't let it become a hassle.
Staying under budget also allows for wiggle room in case you decide to hire someone to take care of the lawn and landscaping for you, or decide to hand over the renting to a property management company.
It's good to remember that you always have the option to upgrade to something bigger and better in the future. Don't get in over your head.
Cushion extra costsAlong these same lines, do your research and be prepared. Once you know you can afford the vacation home, look at all the other costs that come along with running the house. That includes everything from taxes and insurance to utilities, maintenance and repairs. Talk to people in the area who live there year round and know what it costs to keep a home and property in good condition.
Take some additional time to understand the tax implications on owning a second home, since they differ and are sometimes more complicated than the ones for your primary residence. Think ahead to consider if you'll be using a property management company in the future. What other services might you hire out?
Once you have a good framework for the costs, go ahead and add a little extra cushioning to soften the blow of any unexpected or unaccounted for expenses.
Be realisticBe realistic about how much time you and your family are actually going to spend at your vacation home. If you have kids, don't forget that as they grow so do their interests. You may have weekend sporting events, music lessons, school activities, and time with their friends taking a chunk out of your planned family vacation time.
Be realistic about how often you'll be able to rent out the place on a yearly basis, too. Talk to a local vacation rental agency to get numbers on how many weeks you can expect to have a demand. It's easy to be overly optimistic about how much rental income you'll have coming in, but it's prudent to make a conservative estimate.
Work with an agent who knows the areaThis ties into everything we mentioned above and that is why working with knowledgeable local real estate agents is crucial. They can be your biggest asset when it comes to navigating the waters of vacation home purchases. They not only already know the insurance and tax regulations of the area, but they know the nuances every day life there. They can answer questions you didn't even know you had to ask.
When you're investing your time, money and future into a vacation home purchase, it's important to feel secure in your endeavor. Having a knowledgeable and experienced local real estate professional on your side is priceless!
Do you have any advice when it comes to buying a vacation home? We'd love to hear it!
Are you thinking about buying a vacation home in the Topsail area? See what homes are for sale on Topsail Island and let us know if we can be of service to you. Also be sure to click on our Real Estate tab on the top of this page for a listing of home buying resources and information.