5 Questions to Ask Before You Buy a Vacation Home

1. Where's a good place to buy?

Buying a vacation home is a bit like getting married: After enjoying the destination as a casual visitor, it's time to make a long-term commitment and settle down.

Choosing where to buy depends largely on where you live, what you can afford, and whether or not you will rent out the property when you're not using it. So before saying "I do," give some serious thought to these core issues:

How will you get there?

According to the National Association of Realtors (NAR), more than 80 percent of vacation-home buyers choose locations within driving distance of where they live, with about half of all owners opting for properties within 50 miles of their primary residence. Proximity to your home is especially important if you plan to visit the property frequently. Much as you loved your trip to Fiji, you're not likely to fly to the South Pacific for a three-day weekend.

Will you need rental income?

NAR statistics show that most owners of vacation homes do not rent out their properties, but if you can't quite make the mortgage payments without some rental income, it's best to choose a popular destination where demand for short-term lodging is high. Experts say the most desirable spots are near oceans, lakes or rivers, or at mountain recreation areas.

Will the location suit your future lifestyle?

While vacation homes can gain value over time, the NAR advises that short-term speculation on residential real estate is risky business, and most buyers settle on a property they'll enjoy for many years to come. 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.

Mountain biking may be your current obsession, but what happens if you decide to take up golf or fly-fishing? And if you're buying a home for future retirement, be sure to look for the kind of structure and location where seniors can live comfortably. Thirty years from now, will you want to climb stairs to reach the master bedroom, or drive a rutted dirt road to your rustic cabin in the woods?

2. Can you afford to buy a second home?

Crunching the numbers is a crucial first step for anyone who's thinking about buying a second home. Otherwise, that dream vacation getaway could become your worst financial nightmare. David Hehman, CEO of EscapeHomes.com, advises buyers to look beyond the sale price to calculate the true cost of ownership.

Key factors include:

Financing

Hehman says mortgage companies may charge higher interest rates and/or require higher down payments for second homes, but there are creative ways to finance the deal without dipping into your child's college savings plan. It's often possible to leverage the equity in your first home, or even divert pretax funds from an IRA. Hehman adds that with the bewildering array of financing options available, it's wise to seek assistance from an experienced mortgage broker instead of dealing directly with a single lender.

Insurance

There's a flip side to the bucolic settings and quaint seaside communities many buyers crave: The most desirable areas may have a higher risk of natural hazards such as hurricanes, floods or forest fires, so insuring that little slice of paradise could easily leave your budget in ruins. To avoid unpleasant surprises during escrow, Hehman advises buyers to get several insurance quotes before making an offer.

Maintenance

Buyers often underestimate the cost of maintaining a home, particularly when it comes to roof jobs, exterior paint and other pesky long-term projects we all like to avoid. Hehman says a good rule of thumb is to set aside about 2 percent of the home's value each year for maintenance. For professionally managed rental properties, he says, buyers should expect the management company to pocket anywhere from 20 to 50 percent of the rental income.

Zillow Real Estate Search


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