eciding to invest in a holiday home is a big decision that shouldn’t be taken lightly. If you are thinking about it, you’re not alone. In 2020, vacation home sales rose 16.4%, according to the National Association of Realtors 2021 Vacation Home Counties Report.
But before you get out your checkbook, there are a few things you should consider first.
WHAT ARE YOUR NEEDS?
It’s nice to think of a place in Florida or upstate New York for a change of scenery, but don’t forget that traveling there will take time. It’s not a quick two- or three-day vacation if it’s that far away. According to the National Association of Realtors, more than 80% of vacation-home buyers choose locations within driving distance of where they live.
You may want to consider someplace closer, unless getting far away is your objective. Which leads to our next question.
HOW OFTEN WILL YOU USE IT?
Consider how many times you would like to get away. Is this primarily for the family to gather during the holidays, or is it for personal getaways to unwind and relax?
Take into account how long you would stay each time. Some people plan a few months every year while others may travel five to 10 short trips.
WILL YOU BE RENTING IT OUT?
If you plan only a few trips or just holidays with family, you may want to consider renting. Offsetting your costs could be attractive.
Just make sure the community allows short-term rentals; more and more communities are banning these.
And plan for additional expenses like a management company, damages and repairs and periods without renters. If your second home is in a ski resort for instance, and you want to ski, you won’t get peak rental rates.
HAVE YOU CALCULATED THE EXTRA CARRYING COSTS OF A SECOND HOME?
Yes, you may be able to work a second mortgage into your cash flow, but consider additional expenses like HOA fees, property taxes, insurance, unexpected repairs, yard and home maintenance or cleaning costs. These expenditures can add up quickly.
DOES THIS HOME WORK INTO YOUR LONG-TERM GOALS?
Can you continue to save for retirement, college, a wedding or other expenses in the long-term? There’s nothing wrong with shifting plans for a new priority, just think it through thoroughly first.
You may want to consult with your financial planner before making an offer.
While vacation homes can gain value over time, short-term speculation on residential real estate is risky, and most buyers settle on a property they’ll enjoy for many years to come, according to the National Association of Realtors. Planning for long-term enjoyment can mean buying a place that’s big enough for a growing family or choosing an area with a range of recreational opportunities to accommodate evolving interests.
Regardless of where you choose your home, make sure you do your research. The most common mistake with second-home buyers is not considering how often they’ll be using the home.
A holiday home can be a fantastic getaway, and with the right research and consideration, one that you and your family will cherish for years to come.