Who wouldn’t want a vacation home to escape to, a place where friends and family can get together, relax, enjoy nature and embrace stress-free-living? For many people, this dream collapsed with the housing market in 2008 – but 10 years later, buyers are returning to search for their ideal second homes. Here are some insights from our team on the vacation home market and how to buy the right vacation home.
Why Are People Buying Vacation Homes?
According to research by the National Association of Realtors in 2016, 42% of buyers purchased vacation homes as a personal or family retreat, 18% as a future retirement residence, and 12% thought it would be a good time to take advantage of low real estate prices and good deals. The average income for these buyers was $89,900 and they chose generally chose smaller properties (townhomes and condominiums) at the seaside (36%), on a lakefront (21%) or in the countryside (20%).
Another reason people bought vacation homes was as an investment to generate rental income when not in use by their own family. 37% of buyers cited this as a primary reason for buying the property and an impressive 76% of investor home buyers feel like now is a good time to add a property to their investment portfolio.
How Do I Find the Right Vacation Home?
Buying a second home to use for vacations is a big decision, and it’s important to find the ideal property that will suit your needs. Here are some tips to help you in your search.
- Choosing your location: This sounds obvious, as location is one of the most appealing factors for a vacation home – but it can be more complex than it first appears. Firstly, ask yourself why you want this home. If it’s as a getaway for your family, then it needs to be easy to travel to and from your current home. For most buyers, they chose something within 180-200 miles of their home. If you primarily want it to earn vacation rental income, then look for an area that draws tourists throughout the year rather than just in high season (when you most likely want to use the home yourself). Also, take a look at the property appreciation in the area and the strength of the local economy – some areas are ideal as business and vacation rentals, so you can draw on multiple markets.
- Get to know the area: If you don’t know the area well, then spend plenty of time in it – off season and in season – before you buy. Try to rent a couple of different places in the area to get a feel for what they offer in terms of access to various attractions, necessities like grocery stores and pharmacies, and other draws like restaurants, beaches and even great views. If it’s somewhere that you’re planning to move to when you retire, be sure to include long-term needs as well. A home far out of town in a rural area may be too remote later in life.
- Keep on budget: There are some fantastic vacation homes out there but it’s essential to develop a strict budget and stay on it – if not below it – when you’re looking to purchase a property. A vacation home shouldn’t add stress to your life and stretching your finances is not going to bring you the relaxation you should have from a holiday home. Expenses for vacation homes can also be higher than anticipated, as you may need someone to manage the property and outsource maintenance because you aren’t on-site to take care of it yourself. A little wiggle room in your finances will go a long way to ease that responsibility.
- Work out the total cost of purchasing and owning the property: Buying a property costs more than the purchasing price – there is estate agent commission, inspection fees, mortgage fees, processing fees and more in the purchase alone. After the property is yours, it will require maintenance, utilities, furnishing and general upkeep. It’s also a good idea to factor in travel costs for your vacation time. This doesn’t mean that having a vacation home is unaffordable, but it is important to take a hard look at different properties and develop a realistic expectation of purchase and future expenses necessary to enjoy your investment.
- Get to know the tax implications: The tax implications of a second property are very different to those of your primary residence, so it’s important to research and understand how this will impact your finances. Property taxes in the area you purchase in may be higher than those where you live or because it will be classified as a secondary residence. If you rent out the home, this income will also have to be declared to the IRS and taxed accordingly. It’s not all bad news though, as there are various refunds and tax deductions available for vacation home owners under specific circumstances, so make sure you have a clear idea of the exact financial and tax implications before you buy. An estate planning attorney or financial planner can also help you minimize taxation through different strategies.
We hope our tips and advice helps you find the perfect vacation home to enjoy – happy house hunting!