Still can’t decide if you want to own a vacation home? Here are some steps that we suggest you take to make sure that your dream vacation home will not turn into a nightmare.
1. Choose the Location Carefully
Why do I want it?
This is a very important question that you need to answer before you start shopping for your 2nd home because the answer would point you to the perfect location where you need to look.
Consider the following:
- If your purpose is for you and your loved ones to gather and enjoy the house as a family, you’ll need to be in an area that is accessible for and will be enjoyed by EVERYONE. You may want to try to rent before you purchase so you’ll be certain if you will enjoy it or not.
- If you plan to rent it out to others, you may want to choose a location with numerous seasons of rental demand, so you aren’t limited to income only
- If you are viewing the home as an investment property you may want to review the projected growth rates of the communities you’re considering, as well as the health of the local economy.
2. Buy Under Your Budget
Don’t purchase a house that costs more than what you can afford. Remember, the home buying budget involves more than affording a monthly mortgage payment.
A mortgage isn’t the only recurring expense: homeownership comes with many other ongoing costs, which you need to anticipate. These include insurance utilities, repairs, and maintenance costs. Maintenance alone can add up: The lawn needs to be cut, the leaves raked, etc. Buyers also need to consider property taxes.
These expenses can add significantly to your monthly outlays, making a home that seemed affordable on paper pricey in reality. So you should include all of these costs and other regular expenses when determining how much home you can afford.
Remember, if you failed to consider other monthly carrying costs, this can cause emotional and financial stress. And you don’t want, right?
Keep in mind that you can always upgrade to a bigger house down the road.
3. Make a Conservative Estimate of Rental Income
Most buyers tend to be overly optimistic about how often they’ll rent out the place. Talk to a local vacation rental agency about how many weeks of the year you can realistically expect demand.
You also need a realistic estimate of how much expenses will eat into that income. Assume that repairs will cost about 1.5% of the value of the house. So for a $100,000 place budget for at least $1500 a year in repairs. Each year the tab might be higher or lower than the estimate, but this rule of thumb will give you some flexibility from year to year.
4. Think of your ideal guests
If you want to achieve good and regular income, and customer satisfaction, you should carefully think about your target guests. Remember, this is not just your business, but it’s also your second home, so ideally you want to attract guests who are just like you!
5. Don’t Get Caught Up in the Moment
If someone brings you an opportunity to buy a vacation home, or to acquire land with aspirations of building a grand home, don’t let yourself be easily persuaded. The proposal will always sound promising but may quickly turn into a horror story in just a snap. Sometimes people have alternative motives. Other times they haven’t actually done their homework to uncover that the so-called deal isn’t really a good one.
The Bottom Line
Slow down, take your time — and do your research. Ensure that you consider everything: location, budget, etc. Also, don’t skip necessary steps, such as making sure the neighborhood feels safe at night and the day (try to visit at different times) and investigating possible noise issues like a nearby train. Move forward only after you have thoroughly run the numbers yourself.
We don’t want an opportunity that turns sour to eat up your money- as well as your precious vacation days.