A vacation property is an excellent way to invest in real estate. It will be a paradise where you can escape your everyday life and can be a financial investment that builds equity. A vacation home is especially advantageous if you enjoy visiting the same spot yearly and can see yourself one day living there permanently. In addition, the house can double as a rental property that can earn extra income.
However, by owning two homes, you will be responsible for more, financially and maintenance-wise. This includes a second mortgage (unless you pay all cash), taxes, insurance, utilities, and other expenses. You’ll need to do continued maintenance on both your primary and secondary residence. With the expertise of The Taylor Lucyk Group
below, we’ll break down the pros, cons, and factors to consider before purchasing a vacation property.
Pros of purchasing a vacation home
Build memories and create future plans
Part of the American Dream is purchasing a home; owning two is beyond most people’s wildest dreams. Picking a spot you already know and love will let you enjoy the area and live like a local. Your vacation home can be a place where you can bring family and friends to make memories and enjoy time away from the usual grind. In addition, a second home can be an excellent place to retire, allowing you to sell your primary residence as profit when you’re ready and add it to your retirement funds.
When you go on vacation, you are most often either staying in a hotel or renting a property for the length of your stay. Although this may be a typical vacation expense, it doesn’t have to be. If you find yourself returning to the same spot year after year, the costs of renting will slowly start to add up. By owning a vacation home, you’ll save money and reap the benefits of vacationing any time you’d like.
Having a secondary residence has many financial perks, like rental opportunities and building equity, tax, and mortgage deductions. As your house appreciates over time, you will earn money that can be saved, taken as a loan for repairs, or used to buy another property. You can also get tax deductions
for property taxes on the second home up to $10,000 and mortgage interest deductions on your primary residence up to $750,000 for single, married, or those filing jointly. Similarly, if you rent your property for more than 14 days per year, you can get deductions on your taxes, insurance, and mortgage. Be sure to check with your accountant, though, as these numbers can vary depending on individual circumstances.
Cons of purchasing a vacation home
Maintenance & expenses for two homes
Your vacation home must be maintained to ensure it stays liveable and appreciates over time. By owning two properties, you’ll be responsible for ensuring both houses are in top condition, which means two sets of appliances, roofs, lawns, plumbing systems, electricity, and more. This can become costly if any systems go wrong in either one or both of your homes. While you can hire someone to do maintenance, this will also be an added cost. In addition to caring for both properties, you’ll be responsible for two bills, including utilities, insurance, homeowner’s association fees, and taxes.
Not only will you be responsible for two sets of expenses, but you are also taking a financial risk if anything that limits your finances should happen. If you lose your job or loved one, or there is a downtrend in the real estate market, your finances may be impacted, making it difficult to pay for both homes. Also, if you decide to rent your secondary property at certain times of the year, you could end up with tenants who do not make timely payments or neglect the home. This can cause additional financial burdens if you have to evict a tenant or make repairs to your property.
Limited travel & seasonality
If you spend a large amount of money on a vacation home, odds are you will want to spend time there whenever you can to make the purchase worthwhile. This will impede you from spending money to travel to other locations throughout the year. Furthermore, almost all areas change with the seasons. Even if you have a beach house in a warm climate, there will be times when the seasonal weather patterns will make the area less vibrant than during its peak times.
Things to consider before buying a vacation property
Before making a hasty decision, take a deep dive into your finances. It is best to consult with a financial advisor, mortgage professional, accountant, and real estate agent to look at your complete financial picture. Consider your income and break down every aspect of your budget to see how much you spend. Then, include the additional expenses you would incur if you purchased a vacation home to ensure it is feasible. Don’t forget to account for a down payment, closing costs, furniture, and other items that will add up when you buy your second home. If you have the cash flow and some wiggle room after calculations, you will be in an excellent position to move forward.
Location & real estate market
As the old real estate adage says, “Location, location, location.” When you’re looking for your perfect vacation spot, make sure you are knowledgeable about the area you are going to purchase real estate. Speak to a real estate professional to understand the prices and trends in the local market so you can make a sound and wise decision. If you haven’t already, make several trips to your desired location to get a picture of the activities, events, schools, restaurants, and stores nearby.
Goals & lifestyle
Before purchasing, think about your ultimate goal of owning a vacation home. Is it for personal use only, or will you rent? Will you maintain the property yourself or hire a property manager? Can you keep your current lifestyle while having the expense of two homes? You can make a comfortable and financially responsible decision by mapping out a clear and actionable plan to purchase your vacation home.
So, are you ready to purchase a vacation home?
There is much to consider financially and emotionally before diving headfirst into purchasing a vacation home. However, if you are financially stable, have set clear goals, and are ready to embark on your next adventure, it may be the right time to purchase. Buying a vacation property is not a one-person job, so surround yourself with top-rated real estate experts to help you achieve your goals. Contact The Taylor Lucyk Group
for information on market trends and available listings of Bergen County real estate for sale. Call them today to see how well they can help you reach your real estate goals!