Tuesday, June 24, 2014

15 Tips to buying your next vacation home.

Vacation homes are hot, hot, hot! - gaining in popularity at least 10% per year since the real estate recovery, with median prices up about 23% annually.  It may be the perfect time to buy your dream destination home but it can be a far trickier process than closing on your average abode.  So here are 15 tips to buying your vacation home:

1. Proximity.
You may start out with heaps of enthusiasm to use your new vacation home every weekend, but studies show that if it’s not within a 2-3 hour drive of your home, you’ll use it infrequently.  Try to find a place that’s an easy drive away for those weekend trips or spontaneous getaways.

2. Ski, surf, or tee off.
The vast majority of vacation homes are in locales with mountains, ocean, or golf courses.  Focusing on these areas will not only ensure you have plenty of fun activities lined up when you visit, but your home values will continue to escalate as demand stays high.

3. To rent or not to rent?
Most people augment the cost of their vacation home by renting it out part of the year.  Unless you’re wealthy enough to pay cash for the property or absorb the extra monthly mortgage cost, you may want to consider this, too.  Of course things get much more complicated if you’re renting the home out, but with a little planning, it will pay off big.

4. Repairs and local contractors.
Since you will probably be a few hours away and not living in the area you’re your vacation/rental property sits, it’s so important to have god local resources.  Spend some time researching and establishing working relationships with property management firms, house cleaners, and contractors and maintenance workers.  The last thing you want to do is have to scramble to find them when something goes wrong! 

5. Collect a BIG damage deposit.
The best advice I can give you if you’re going to rent out your vacation home is to collect a sizable damage deposit from your renters.  That way, you won’t be stressed or left holding the bill if things go bad.  I have a friend with a ski condo in Tahoe who rented it out.  The renter forgot to keep the thermostat on when he left so the pipes froze and then burst, leaving the unit flooded.  Guess who had to pay for that one?  The owner!

6. Taxes.
Vacation properties have their own tax guidelines, as do rental properties.  If you stay in the property two weeks or less a month different rules may apply, so always make sure to consult with your CPA or tax professional before purchasing your vacation home, or any real estate.  But by renting it out you also may be setting yourself up for great tax deductions.

7. What’s your long-term strategy?
Do you plan to hold on to the vacation home forever and grant it to your children?  Sell it in a decade once the price has escalated high enough?  Eventually retire there?  Pay it off?  Just like purchasing any real estate, it’s smart to have a long-term strategy penciled so you’re sure to maximize your investment.

8. Do you want familiarity or adventure?
Some people are looking for the comfort and stability of visiting the same place on vacation every time, while others seek adventure and will quickly grow bored.  Make sure you are committed to using your vacation home!

9. Store your personal effects in a locked closet.
I had some friends with a vacation bungalow on the ocean in beautiful Nicaragua.  It was only a 3-½ hour flight from where they lived in the United States so they could come at least once a month.  They did rent it out while they weren’t there.  But the unit was outfitted with one large closet they kept under tight lock and key where they stored everything they needed: towels, swim suits, shorts and t-shirts, toiletries, surf boards, and snorkeling gear.  So when they wanted to come, they only had to grab a backpack or carry on and hop on a plane without worrying about checking a big bag or even packing, but they knew it was still safe from renters getting to it.  It made the experience that much more fun for them! 

10. Use it for special occasions.
Believe it or not, most people run into the problem that they don’t get to use their vacation home enough!  So to ensure it’s properly utilized, why not open it up for special occasions for friends and family?  Christmas parties, anniversary parties, birthday weekend getaways, and even weddings can be hosted in your vacation home and it will feel like a special treat for everyone. 

11. Trade?
After a while you may want a change of pace, so set up an exchange with a different home owner so you can take a vacation to a new destination.  There are plenty of websites and services that will facilitate the introduction and exchange.

12. The cost of making your house a home.
Buying the property isn’t your only expense – remember that there will be utilities, maintenance, and often homeowner’s fees.  You’ll probably also need to furnish it and buy bedding, outfit the kitchen, etc. just like any home, so factor in this cost. 

13. Get to know the rules and regs.
Many vacation communities have strict homeowner’s associations and CC & R’s that regulate just about every aspect of your new home.  Make sure you know those well before you buy, as some of them even prohibit renting your home out!   Ialoharadio.com

14. Qualifying.
Keep in mind that qualifying for a loan on a vacation home will be different than the process on your owner-occupied home, or even an investment home.  A good loan officer will go through all of the pertinent scenarios with you (like whether you should include potential rental income to improve your debt-to-income ration.)

15. Don’t go it alone?
The cost and time investment into a vacation property could easily turn it into a white elephant.  One way to diffuse your risk and cost is to buy it with a friend or business partner.  It’s much easier for two or even three people to pay for and maintain the property, and it’s sure to get much more use.  Just make sure you choose your ownership partners wisely!

1 comment:

  1. Thanks for the tips! My husband and I have been looking at our budget to see if we can afford purchasing a vacation home. We'd love to be able to get away for a while. We'll have to keep these tips in mind as we begin looking at homes for sale. I hope that we'll be able to qualify for a loan! http://www.nywaterfronthomes.com/Pages/Watertown.aspx