Buying Your Dream Vacation Home
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Written by Jim Mckinley from Money With Jim
If buying a vacation home is on your retirement wish list, you may be eager to jump in and get started. Before you start viewing properties, you should plan ahead to make sure you’re well prepared for this investment.
Before Buying Your Home
First off, you’ll need to do some research before buying a vacation property. Decide how often you’ll reside there – more or less than 50 percent of the time? You also need to decide what to do with your home when you’re not there. Will you rent it out or close it down?
There are also going to be special considerations, particularly for insurance costs, if you primarily want your home to be a rental property. According to US News, that means you might pay a higher interest rate on the mortgage. Either way, you need to make sure that you have the appropriate income to support not just the mortgage, but insurance, property taxes, and maintenance throughout the year.
Once you’ve made these decisions, you can start researching locations and costs. If it’s truly a second home for you, you might want to invest in a home more like your current one. Ameritrade lists more considerations you should think about, such as financing and your long-term plan for this home.
Keeping Costs Down
Buying a vacation home comes with additional expenses you might not have considered. You’ll need to review taxes and insurance plans that are specific to these homes, as well as maintenance costs for while you are gone.
If you are not planning on renting out your home, then taxes will be similar to your current home. However, if you rent it for more than 14 days out of the year, you must report your income. That tax is also affected by how long you personally stay in the home. In fact, according to Investopedia, a second home does not necessarily have “easy write-offs from the IRS.” Additionally, tax rules that apply to second homes have changed more often than rules for first homes. Get more details on vacation home tax rules from Kiplinger.com.
Insurance costs can be higher either because the house is unoccupied for much of the time or because you are renting it out. According to Bankrate.com, both of these put the home at greater risk of damage and/or theft. You might also need to purchase additional insurance. For example, you’ll need flood insurance if you are buying a home near the water or in a flood zone.
You can save on your premium by installing a quality security system, according to Value Penguin, and you may also be able to save by bundling your insurance. The New York Times offers a comprehensive guide on insuring a second home.
A second home still requires care and maintenance when you are not around. You may need to prepare for seasonal changes, such as caulking leaks and securing weather stripping. Alternatively, you can hire a property manager or local staff to look after the property. This is especially useful if you plan to rent out the property, as you’ll need someone to help with cleaning between guests, handling regular maintenance (think changing air filters, washing bed linens, cleaning out the dryer vent) and generally keeping an eye on your second home.
If you’ve got furniture and decor you want to move from your primary residence, you’re going to have to plan to get your items from Point A to Point B. If you’ve only got enough to fit in a trailer and can bring it yourself, that’s great. Otherwise, you’ll need to plan for the cost of movers. Look for additional ways to cut costs when it comes time to moving. Some people opt for the hybrid method where they rent the truck themselves but hire movers to clear it out. This can help put more money in your pocket to put toward other home necessities.
Selecting A Home
Once you are sure you have the budget for all these eventualities, it’s time to start researching vacation homes. Keep in mind that the more amenities the home has, such as a swimming pool, the more it may cost to insure. Again, location is important, particularly for insurance costs, so seek out home pricing in your desired location. For example, if you’ve got your heart set on Florida but aren’t sure where, start looking at average costs for popular cities to see what could work best for your budget and lifestyle.
Once you’ve selected a home or area, take stock of everything needed for this investment.
Buying a vacation home is the dream of many retirees, but it can be a challenge to budget properly for this expense. Commit to due diligence to ensure you’ve got all your bases covered so you can comfortably find the right property to enjoy for years to come.
If you are ready to learn more about Selling you Current Property and Buying Your Dream Vacation Home, fill out this form to get started or give our office a call! 786-808-1099