It’s Vacation Time! Should You Make that Home Away from Home – Your Own?!
With the summer months ahead, many people are firming up their plans for a week or two getaway from the hustle and bustle of their professional lives. But, what if your summer escape could be more of a permanent thing? Have you ever considered making your favorite vacation destination your very own home away from home? When you’re considering whether or not to purchase a vacation home, there are various things to think about that go far beyond the number of bedrooms and bathrooms you’ll need. Delving into the realms of owing a second home, particularly one that is considered a vacation property, carries other responsibilities, taxes and homeowner concerns. Want to make your summer escape your own personal property? Here are some important things to consider: Destination Location Is your favorite vacation destination a remote island, a mountain cabin or a condo along a golf course? The location of your potential vacation home plays a huge factor in how much time you may be able to spend there if you decide to purchase it. First of all, think about your transportation. Is it an easy drive or do you have to take a flight and catch a cab to reach your peaceful escape? The harder it is to travel to your vacation home, the less likely you will be to spend much time there. The location of your vacation home also plays a huge role when it comes to weather. Is your escape located in a place that you’ll be able to go at any time of the year? Is there a peak season where the area is flooded with tourists that may take the “relax” out of your relaxing getaway? Might seasonal weather conditions prevent you from enjoying some time at your vacation home? Is your dream vacation home located in a place that will accommodate your changing lifestyle as you age? The Off-Season After you’ve determined where you might like to purchase a vacation home, it is wise to consider what you might do with your home when you’re not there. After all, we’re talking about a secondary property here. If you’ve got children, weekend activities, like sporting events or sleepovers with friends, may prevent you from enjoying your vacation home as much as you might like. So, when you can’t be enjoying your vacation home, should someone else? About a quarter of vacation properties are bought with the intention of renting them out. Have you thought about the fact that buying a vacation property could also make you a landlord? While you’re tallying up potential rental income, don’t forget to include additional vacation home maintenance costs that can accompany dealing with tenants. Remember, if you would like to rent out your vacation home, location may be a huge factor in destination desirability. Statistics show that vacation renters love beach and mountain-side escapes. The Bottom Line Once you’ve snapped yourself back to reality, after envisioning yourself with a drink in hand year-round at your own personal summer escape, it is impossible not to pour over the financial side of buying a second property as a vacation home. As any homeowner has found out, the sales price is never the only cost involved in owning a home. And, when buying a second property, some of those associated costs can vary. Lenders may not offer the lowest rates to people applying for a mortgage on a second home; however, in some cases, homeowners may be able to use their current home equity as leverage in obtaining financing. Depending on a vacation home’s location, insurance premiums could be higher, thanks to natural hazards like hurricanes, floods or even forest fires. And, who can forget maintenance issues? Whether you’re planning to rent your vacation home or not, you can’t let it go awry while you’re away. Tax Season That word “renting” keeps popping up when you think about buying a vacation home and tax season is yet another time where your getaway’s intended purpose comes into play. Yes, Uncle Sam wants to know how often you’re renting out your vacation home. If you plan to do so for less than two weeks each year, he doesn’t care to know about your rental income; but, renting your vacation property for any greater length of time may add mounds of paperwork to your tax season. Typically, selling a second home is also viewed as a capital gain, which, again, carries other tax fees. Before you decide to purchase your dream vacation home, make an appointment with your accountant to discuss how the property could affect your tax season. Should You Go it Alone? You may love to vacation with members of your family or a group of friends, so buying a vacation home with them may seem like a logical decision. And, yes, it may be. But, even the greatest of friendships can falter at times; so, if you’re planning to purchase a summer getaway with close family or friends, it is a good idea to have a contract that covers any “what ifs,” just in case any of you decide that you need to get away from your… um, getaway. If you’re feeling like you already need a vacation from thinking about the finer details that surround making your vacation home a home away from home, relax! Here are three tips for ensuring you’ll be able to permanently enjoy your vacation destination once you make it your own: Rent it before you buy it! Spend a week or two in an on and off season at your intended vacation property. Make sure that you enjoy being there in times that may be busy and times that may be off-peak. Buy under your budget! Because the taxes and fees that can accompany buying a vacation home may differ from a primary residence, take the worry out of financing your vacation property by purchasing a home that doesn’t stretch the limits of your budget. Then, extra financial concerns will be no concern at all. Don’t overestimate rental income! If you’re banking on rental income to help cover the costs associated with owning a piece of your vacation destination, remember that overestimating your rental income is a dangerous way to divvy up the costs. You may be able to rely on some additional income from renting, but you should not count on that income to finance your vacation home. Whether you’re purchasing your first home or adding a vacation home to your property portfolio, it is often a good idea to consult with your real estate agent, lender, insurance agent and accountant. Once those less-than-relaxing formalities are out the way, you can be on your way to that relaxing vacation destination that you’re ready to call your own!
