You may be dreaming of buying a vacation home to escape from the daily grind, where the only thing to do is enjoy quality time with friends and family.
Of course, buying a vacation home can be a significant investment, and you may be on the fence about buying a home strictly for summer or winter seasons. However, taking several financial and personal factors into consideration may help you decide.
Here are three questions to ask to better determine whether buying a vacation home is right for you.
1) Would the home get a lot of use?
If you don’t plan to rent out the vacation home, you should consider how often you might actually use the property before deciding to buy it. For example, if you’re like many Americans with a busy work schedule, family obligations and other circumstances, you may find that you can only get away two weeks out of the year. In this case, you may decide that owning a second home that’s not used as an investment property may not be in your best financial interest.
On the other hand, if you already spend weeks at a time at your favorite vacation spot, you may find that owning a property there will give you more freedom and flexibility when it comes to planning family trips.
Other factors that come into play are distance and convenience. For example, you should determine if you are willing to drive or fly a long distance for seasonal upkeep and home maintenance. Will you be able to get to your home quickly, or can you hire out a professional to deal with emergencies? Determining how to manage a property that is a great distance away can ease your stress.
2) Is it affordable?
Interest rates and down payment requirements for a second home differ based on how you plan to use the property, according to Kiplinger.com. If you plan to use a second property as a residence, financing rates and requirements will likely be similar to those of your first home. However, if you plan to use your second home as a rental property, you will likely take on a higher interest rate and may be required to make a larger down payment, sometimes ranging between 20 and 25 percent. That’s because mortgage insurance typically isn’t available on an investment property, and lenders mitigate their risk on a loan by requiring more from the borrower up front. For these reasons, it’s important to consider the financial implications.
3) Would I consider sharing the home?
In some cases, it may be wise to consider fractional ownership. Unlike timeshares, fractional ownership properties have a smaller number of buyers, which, in theory, offers increased access to the property. And, by sharing ownership, the financial and maintenance responsibilities may become less of a burden as you share the risks of home-ownership with others. Of course, that also means you’ll be sharing access, so fractional ownership only makes sense if you want occasional access to a property, not a summer-long retreat. Either way, property contracts should be carefully considered.
Another important factor to consider is how you will actually conduct your search. Working with a local real estate agent can be crucial during the search for a vacation home. An experienced agent will be more familiar with local laws, customs, and building codes, and can walk you through the home buying process, provide insight into the community and help negotiate a purchase price that’s in line with local property values.