Owning a second property or vacation home is now more affordable than ever and with a huge variety of properties available, whether you are looking for a ski lodge in Colorado or a beachfront condo in California, there is something to suit every requirement and budget.
There are also a variety of benefits of purchasing a second property and these include:
Tax Deductions. Not every vacation homeowner likes to rent out their property and if you charge rent for occupancy for less than two weeks per year then the interest on the mortgage and property taxes are fully deductible from your gross income. In a nutshell, any mortgage on your second residence can be treated in precisely the same way as that of your main home.
Long-Term Profit. Vacation properties are generally in desirable and popular areas and as such are more likely to retain or increase their value. While there is no guarantee that you will be able to sell your vacation home for a higher price at a later time, generally its value should remain more stable than a regular residence.
Rental Income. If you choose to rent out your vacation property then you have the benefit of additional income for each rental period. If you occupied your property fewer than 10% of the days that you rented it or less than two weeks – whichever is greater – you should be eligible to deduct all of the operating expenses of the home. These can include items such as management fees, utilities, maintenance and more. A tax professional can advise you exactly what you are eligible to deduct.
Personal Benefits. Not everything is business and a vacation home is somewhere to make memories with your loved ones. You will have the opportunity to make new friends with people in the neighborhood of your vacation home, not to mention the benefits of having somewhere to stay when you want a change of pace from your day to day life. Many families pass their vacation homes down through the generations, making them as much of an emotional investment as a financial one. Having somewhere to store your sports gear or skiing equipment is pretty handy too!
If all this sounds tempting then a vacation home could be a wise investment for you, but there are also a number of considerations that you should make. These include:
High-Cost Mortgages. Generally the percentage of down payment and interest rates paid on the mortgage of a second property are higher than on a primary residence. The exact figure is variable based on the age, condition, location and value of a property but typically you can expect to require a 20-30% down payment to secure your finance.
High Initial Outlay. Vacation homes are usually desirable properties in desirable areas and this usually results in a higher price tag. You also have to factor in that you will probably need to furnish your property with everything from beds and wardrobes to linen and lighting, and this will add a substantial chunk onto your initial costs.
Maintenance Costs. You will be responsible for the maintenance and upkeep of two properties instead of just one, and so you will need to ensure you have a reasonable contingency fund to cover any unexpected expenses.
If a vacation property still seems like the right choice for you then make contact with a reputable realtor in the area that you are looking to purchase within. Personal recommendations are best, but alternatively shop around and speak to multiple realtors until you find one that you think will best meet your requirements. A local real estate agent is invaluable in the purchase of a second home and they will be able to advise and guide you through the process from start to finish. Once you have a realtor in place you can work together to find your dream vacation property. What are you waiting for? Contact me today with any questions.