Jerry and I have been to several beautiful vacation spots over the years, and I have often found myself saying, "I love this place! I could live here for the rest of my life!" We've even picked up the local paper and grabbed a HOMES magazine and dreamed about owning our own private piece of paradise. After all, what a wonderful way to get the whole family together. It could even be more than just a home-away-from-home: we could eventually retire there as well.
Baby boomers with discretionary dollars to spend have fueled an increase in the number of vacation-home sales in recent years. In a recent survey conducted by the National Association of Realtors, the majority of buyers (79%) said that they bought the home to use for vacation or as a family retreat. 34% said a reason for buying was to diversify their investments. 28% said they planned on using the home as a primary residence in the future. 25% reported that the tax benefits were their main reason to buy. 21% bought because they had extra money to spend, and 18% of buyers planned to rent our their homes.
But financial planners and real estate professionals suggest using caution before jumping into the commitment of owning a vacation home, an investment often loaded with hidden costs.
1. Is it really practical? It's so easy to fall in love with a place while you're in "vacation mode", envisioning endless summers of total bliss with your family. You're thinking: hey, we're spending a big chunk of change on vacations every year anyway - why not own instead of rent?
When you buy a vacation home, you're vested in that home indefinitely. You're now tied to going back to the same place year after year, giving up some of the flexibility you would normall have staying in a rental home or hotel in another location.
2. Is it affordable? It's extremely important to estimate how much you could use the vacation home and how much it will end up costing you each year. If the home costs $200,000, for instance, it's difficult to justify spending that kind of money on a home you may onlyuse three or four times a year.
Costs that need to be factored into the equation are real estate taxes, insurance and utilities. If you own a single-family dwelling you will need to regularly pay a crew to keep your lawn mowed and your landscaping trimmed.
3. Is it rentable? Many second-home owners don't buy a home with the intention of renting it out. But it's wise to know if a property is rentable at the time of purchase. A rentable property might be a great selling feature if you want to sell it at some point.
When visiting some friends who own a vacation home near Dale Hollow Lake (on the Tennessee side), they introduced us to their Realtors. They told us that there is definitely a "honeymoon period" attached to a vacation home purchase, and after a few years many people find their lifestyles have changed and they're often just too busy to come back as often as they used to. Owners find themselves renting it out in order to recoup some of the cost of ownership.
Before you buy, ask about renting restrictions. Some condo communities, for example, have leasing restrictions to comply with. For single family home, it is often easier to rent property when there are other rentals around it. Secluded homes could have less success attracting renters.
Of course you need to ask yourself if you are now ready to become a landlord, which has its own set of headaches. And if you don't want to deal with tenants yourself, you will have the added expense of paying a management firm to handle it for you.
4. Choose a location. Before starting the actual home search, decide what the home will be used for. Will it be a getaway during the winter months, summer months, or both? Are you looking for a place that has lots of recreational activities nearby, or are you seeking a place of solitude? If you're a golfer, you'll likely be want to find a golf community. If fishing is your passion, you'll want to do some research on where all the great fishing lakes are located.
5. Do your homework. After deciding on the general location, you can start your search online. A Realtor in the area can also be of particular help in finding a vacation property because of his or her local knowledge. If possible, use an agent who specializes in selling second homes; buyers and sellers can search for those with a "Resort and Second Home Property Specialist" designation through Realtor.com's "Find a Realtor" link. Or just ask around: the best Realtors are found by that good old "word of mouth" referral network.
6. Consider future plans. If you're thinking about buying a vacation home that will one day become your retirement home, buying in advance to try out the new location could be a smart idea. Just make sure your Realtor has provided you with a detailed comparative market analysis so you'll know you aren't overpaying for the property and that in a "normal" market you should be able to sell the home in a reasonable amount of time if you want to or need to later.
7. Take your time. Gather your information and go home and talk it over carefully. Give yourself plenty of time to talk it over and make an educated and informed decision.
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