Are you thinking about buying a vacation home? While the idea of having a place to escape to anytime you want to take a vacation is exciting, there are some considerations you need to address before you buy. To avoid being caught off-guard by unexpected expenses and responsibilities after purchasing a vacation home, ask yourself these questions before you start shopping.
Can I Really Afford a Second Home?
Understanding the financial ramifications of buying a vacation home is the first and most important step in the process of purchasing a second property. Aside from the mortgage payments, you also need to plan for property taxes, insurance, utilities, and homeowners association fees.
Just like any other residence the home will need regular maintenance, so you will need to plan for those expenses. Will you need to hire a property manager to keep an eye on the property and perform the maintenance work? If so, that’s another expense for which to budget.
Will I be Renting Out the Home to Offset Costs?
A lot of people choose to rent out their vacation home when they aren’t using it to help pay for the expenses of owning the property. If you do decide to rent the property, be sure to understand the tax implications and local laws concerning rental properties. Also keep in mind that while the income will help pay the mortgage, renting it out will also come with financial obligations such as cleaning services, property management, and wear and tear that will require regular maintenance.
How Will Buying a Vacation Property Impact My Retirement Plans?
Buying a vacation home may impact your ability to meet your financial goals for retirement. If you have a retirement date in mind, can you still meet that date if you take out a second mortgage? Will you still be able to save at the same rate you are now so you have enough money to cover long-term care or medical costs as you age? Are there any other retirement goals that would be impacted by the decision to buy a vacation property? It’s important to understand the impact this would have on your future financial security.
Am I Actually Going to Use the Home?
While a vacation home seems like a great idea, it can be a bad investment if you don’t actually use the home. Carefully consider if you want to repeatedly return to the same place for vacation. If you like to travel and see different places, it may not make sense to buy a vacation home from a financial perspective. You likely won’t have as much disposable income to use for travel. Also, can you get away regularly to make it worth the money you spend on a second home? Before you start looking around for a property, make sure a vacation home fits into your lifestyle.
Taking on a second property comes with a lot of obligations. Answering these questions will help you determine whether or not buying a vacation home is the right move for you.