Guest Post By Diana Fishlock
A great vacation often sparks dreams of owning a getaway home. It seems perfect after that beautiful week near the ocean or the mountains with no responsibilities. It may also seem like a retirement option or a good investment of time and money. But is it?
A vacation home won’t likely offer the same return as an investment in the stock market or provide you with the investor confidence that comes from owning a bond, so it’s important to weigh the pleasure the property could bring versus the hassles. There are several questions to ask before signing mortgage papers on a second home.
- Use: Is the property nearby; or does it require flight transfers or hours of driving to visit? Make sure the property is convenient enough for family and friends to visit. Consider if the new debt will balance out two, four or six blissful weeks each year. Buyers who intend to use vacation homes for retirement living should consider how manageable the layout of the property would be with arthritis that commonly sets in during old-age. Also weigh how difficult the property might be to keep up later in life.
- Entertainment: When home shopping, consider if the location will remain a fun vacation spot year-after-year. Property owners may not want to retire in the same place they’ve been vacationing for years. Look for towns with a variety of restaurants, activities and people that keep it interesting.
- Community: Does the community welcome newcomers and vacation homeowners as members or cash cows? Research tax trends to be prepared for their rate of increases. Look for local boards, charities, organizations and churches to get involved and build friendships. Does the area seem like a comfortable location to spend retirement? Are restaurants and other attractions open when tourists aren’t in town?
- Structurally Sound: Be sure to avoid properties that require major upgrades or frequent repairs to maintain. If the property is at the beach, make sure it’s structured to withstand serious storms.
- Repairs: What will happen if the pipes freeze in the winter? Vacation homes need regular monitoring or local management to take care of repairs and security year-round. Owners are responsible for mowing the grass and clearing the snow, especially if they intend to rent out the property when they aren’t visiting. All of these details cost time and money.
- Climate: In some locations, properties require constant heating or air conditioning. In wooded locations, owners may need to hire exterminators to regularly fight off giant insects. Is there a damp season or a long gray period? Visit a location in all four seasons before making a lifetime purchase.
- Risk of Real Estate Investment: Buyers can’t foresee their circumstances five or 10 years from now. A layoff, divorce or other major financial change might make a second mortgage unmanageable. Stocks, money markets or bonds may be easier to liquidate in times of low cash flow.
- Total Cost: Home shoppers can help calculate the costs of future mortgages, including taxes and insurance, but they must also factor in the costs of regular maintenance. Even if monthly costs seem affordable, a down payment and closing costs add up quickly. Remember, the larger the down payment, the lower the monthly mortgage cost. When paying multiple mortgages, it may be beneficial to keep the monthly payment low.
- Insurance: Catastrophe insurance such as flood insurance is a pricey addition to a budget, but necessary in many waterfront areas. In fact, some lenders require homeowners to insure their properties against possible natural disasters based on location.
- Annual Fees: Even though vacation homes aren’t typically occupied year-round, some services must be paid regardless of presence. Some year-round costs include insurance, utilities and trash services.
- Resale Value: Any homebuyer and owner should be aware of the resale value of their properties. The estimated return on investment (ROI) should factor in the competition of the market. Popular locations with lively communities and scenic views typically have higher ROIs than rural areas, even if nature and privacy are the homeowner’s dream. Stronger ROI also occurs in well-performing school districts and developments with impressive amenities.
- Rental Property: Owning a rental property requires time, management and cleaning maintenance between guests or tenants. Buyers must decide if they’re ready to be landlords with legal contracts and tenants who want problems fixed quickly. Owners who live great distances from their vacation homes may have to hire a property manager or handyman to respond to tenants’ needs. If renting the property to vacationers, be prepared that the space may only fill up a few months out of each year.
Buying a vacation home is a big decision with implications for time and finances. Smart buyers learn all they can about the house and the area before proceeding. They consider earnestly how much they would use the house and whether they are emotionally prepared for the unexpected work and expenses that can arise. Then a vacation home can be a smart investment and one that buyers will enjoy for years to come.