Buying a Vacation Home

Buying a Vacation Home

With winter approaching, many couples think about buying a vacation home in some warm area. Last year in January, vacationers read in the news that their home town in the Midwest was experiencing temperatures below zero. They were so happy that it was 85 degrees outside and the pool was available until 10:00 pm.

Purchasing your own piece of paradise is an exciting opportunity, but there are many important factors to consider before taking the plunge. Here’s a checklist of key considerations that will help ensure you and your clients’ success.

Buying a Vacation Home

1. What kind of travel are you committing to?

   The location, ease of access, and how often you plan on using it are paramount components in this endeavor. If it’s too far away, then you might not use it as much as you initially thought you would. If your vacation home is one to three or four hours away, you will probably find it convenient to hop in the car for a weekend. If the vacation hope is in Mexico, transportation costs may limit how often you can fly away. An alternative would be to fly down for months at a time.

2. How are you going to use the vacation home?

   Is it going to be a yearly summer spot for extended family or a romantic weekend getaway? Will you plan to live there permanently after retirement? Will you need three bedrooms, or is 500 square feet enough space? Having a clear idea of what you want, who’s going to use the home, and the purpose of it will be extremely helpful in the overall process.

3. To rent or not to rent?

   Many owners are open to renting their vacation homes when possible. If this is appealing to you, do your homework. Tax laws can limit how much you can use the property if you rent it out. Check with professionals, so you don’t get in trouble.

4. How are you going to finance it?

   Make sure you fully understand the financial implications of owning a second home. Consult with your certified public accountant and your financial planner. There are differenttax rules that apply depending on the breakdown between personal and rental use. Keep in mind that there will be maintenance costs for upkeep and repairs on the home.

5. Create a budget and be prepared for the expenses.

   Because owning a vacation home is more a compulsion than a financial decision, turning the property into a profitable rental tends to be an uphill battle. Before you jump into being a vacation-home landlord, take a good look at how your taxes will be affected. Most people who own second homes would be better served by getting them classified as a mixed-use property for tax purposes and renting them out for only the tax-free 14 nights in a given year. 

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