Purchasing a Vacation Home
Is Buying a Second Home a Great Investment or Merely a Money Pit?
Buying a weekend house or condo may be a sound investment, or a money-losing maintenance headache. Find out if you should buy or rent vacation property.
You’ve spent summers at the lake for years. You’ve poured a lot of money into rent, week after week. Now that real estate prices are down, could this be the time to buy that second home? Maybe. But ask yourself these questions before you sign on the dotted line:
- How often will you actually stay in your vacation home? Sure, you plan on vacationing there six weeks out of the year, but work and family obligations get in the way. You need to make sure you will actually enjoy your second home before you make a financial commitment.
- How easy is the property to rent out? Talk to a management company either on-site or close by. What are the high and low seasons? If the community has a busy season of only three months, the likelihood of making any decent rental income is nil. Make sure you obtain the property’s rental history. And come up with a budget taking into consideration the projected rental income versus expenses.
- What percentage does the management company charge to lease the property for you? Those fees can run as high as 50% or more. Also, some companies maintain an exclusive agreement with the condo board or property association. That means if you’re not happy with the way the managers are handling your property, you’re stuck. Managing and leasing the home yourself from hundreds of miles away may not be an option.
- Will your needs change in the future? When kids get older, they may not want to go to the beach or the lake with you anymore. You may find a job that’s farther away and not convenient to your vacation property. Think hard about the long term because you may find yourself making mortgage payments and paying condo fees on a property you don’t even vist anymore.
- Is the property a short distance away by car? Sure, a beach-front condo in the Caribbean sounds ideal, but realistically, how often can you afford to get away? Dealing with airline tickets and holiday schedules means that home will be sitting empty much of the year. And with gas prices going nowhere but up, do you really want to buy a property that requires you to drive eight hours every time you plan to visit?
- How is the economy of the area where you want to buy? Find out about the local job market. Does the economy depend totally on tourism? Does one employer dominate the entire community? You need to determine if a potential layoff could devastate the real estate market.
- Has the real estate market in that community hit bottom? Of course you don’t have a crystal ball, but even with the downturn of the market nationwide, some areas have been hit harder than others. If the length of time properties are sitting before selling is increasing, that may indicate you should wait a little longer before buying.
- Have you budgeted for insurance costs? Especially if you are looking at ocean or gulf-front property, home owners’ insurance in certain areas has skyrocketed. The price of insuring your home may be cost prohibitive.
- Is it cheaper to rent? Consider how many weeks you will spend a year at your second home. Factor in all the expenses involved with buying. Then compare to the cost of renting. You may be surprised at the results. In this volatile real estate market, you can’t count on appreciation.
If, after addressing these issues you still want to buy that dream vacation home, remember buyers are in the driver's seat. Don’t be afraid to make a low offer, and don’t get emotionally involved. As the saying goes… there are more fish in the sea, and there are also more homes on the beach.
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The copyright of the article Purchasing a Vacation Home in Buying/Selling a Home is owned by L. Marie Dubuque. Permission to republish Purchasing a Vacation Home must be granted by the author in writing.
