Things to Think About Before Purchasing a Vacation House

Bricksnwall Trusted Experts

Although owning a vacation property may seem ideal, there are issues with rentals and the housing market to take into account.

Purchasing a vacation property may seem like the ideal investment, but it's a major choice that needs careful consideration.

Austin Allison is the co-founder and CEO of Pacaso, a San Francisco-based real estate company that seeks to promote second home ownership. "A second home has countless life-enriching benefits, as it specifically gives you that place to spend time with friends and family and create memories, which I find to be super important to set aside time for," Allison explains.

Examine the Benefits and Drawbacks

Even if you are dead set on purchasing a vacation property, you must weigh the advantages and disadvantages. 

Among the benefits are:

For additional money, you may rent it out. By letting visitors stay in your holiday house, you can generate passive income.

It requires investment. A vacation house not only generates revenue from rentals, but it may also increase in value over time. Value increases are possible for vacation rentals, particularly in locations where demand is rising.

You'll save money on your subsequent trip. A trip to your vacation home could save you money, as opposed to booking a hotel or other short-term rental.

Benefits to taxes might exist. Owners of second homes can benefit from substantial tax breaks, including interest and property tax deductions. When it comes to taxes on your vacation house or rental, you might want to consult with a tax expert.

It might make a great retirement home. Depending on where your vacation house is located, it might make an excellent retirement community someday. 

Cons, however, also exist:

It is pricey. You will be responsible for paying the mortgage, property taxes, insurance, and utilities, just like you would for your primary residence.

Unexpected costs can arise. The unforeseen costs of homeownership are inevitable. A cash reserve should be planned for in case of emergencies or regular maintenance needs.

It takes time and work to keep up. Even while you're not home, you need to make sure your house is secure. In addition, if you intend to rent out your vacation house, you will need to keep an eye on any possible issues and make sure the house is kept up-to-date and cleaned after each reservation.

The down payment could be high. Purchasing a second house or vacation property typically requires a larger down payment than purchasing a mortgage for your primary home. This is contingent upon the lender, though. Chase states that you will probably need to make a down payment of at least 10% because a second mortgage typically increases the homeowner's financial burden.

Get Ready to Assume Greater Responsibility

While there are many alluring reasons to purchase an investment property, Allison points out that having a second house on your own has significant drawbacks, such as a significant time and money commitment.

Allison also notes that the biggest error made by second-home purchasers is to overlook these recurring expenses and problems in favor of solely considering the advantages of owning a second property.

Even if a property management company can handle day-to-day operations, you are still financially accountable for the upkeep of the property. If you want to rent out the property, this expense could increase dramatically.

It costs more money and takes more time to properly maintain a luxury home with modern architecture, expensive furniture and décor, first-rate facilities, and high-end appliances. 

Examine Your Way of Life

How frequently are you going to use your vacation property? When you're not around, will you let it out for rent? When the property is empty, who will maintain it?

"Interested buyers should think about their lifestyle, how they want to use their home, how often they want to use it, and who will take care of it while they're not there," advises Allison. "The majority of the nearly 10 million second homes in the United States are vacant for 10 to 11 months out of the year."

Describe Your Financial Objectives.

Setting specific financial objectives early on in the purchasing process is advised for all vacation home buyers, according to Daned Kirkham, senior director of real estate at Vacasa, an international vacation rental management company with headquarters in Portland, Oregon.

Is the buyer's goal to make money or just pay for what they need? To what extent would the buyer utilize the house for their own usage, or will they let friends and family use it instead of hosting paid guests? Is the buyer thinking about managing the property themselves or hiring a full-service manager like Vacasa? All of these are crucial issues to deal with right away, he claims.

In order to make sure a particular property fits a buyer's budget, Kirkham, who also specializes in the sale of holiday rental homes, adds that specialized real estate brokers should be able to provide rental revenue estimates based on competitive set data.

Location is Key

Pacaso's 2022 Second Home Attitude Report states that for prospective and current homeowners, location is the most crucial consideration when making a purchase. A house on the sea, such as a lake or beach house, is preferred by most people looking for a second home, followed by a residence with a view of the tops of mountains.

Even though owning a beach house would seem ideal, it might not be feasible if you have to take a plane every time you want to visit. Allison pointed out that the majority of individuals (87%) desire to drive, and two-thirds of people (64%) commute or anticipate commuting to their second home in four hours or less.

Deal With a Realtor Specialising in Vacation Property Purchases

Working with a real estate agent who specializes in purchasing vacation homes and is aware of the differences between them and primary houses is something you should do. Resort and Second-Home Property Specialists, certified agents of vacation homes, are trained and accredited by the National Association of Realtors.

A real estate expert will also be more knowledgeable about the local regulations if you wish to turn your holiday house into a rental. Kirkham says, "They'll be aware of the permitting process, which can be complicated depending on zoning, and local regulations."

"Do your homework and get in touch with the governing city or county to learn how a property is zoned and how short-term rentals are governed locally if your agent is not as knowledgeable about local laws," he continues. "There's no guarantee, even if the house was previously used as a short-term rental."

Additionally, a specialized realtor can assist in directing the customer toward the most advantageous home. According to Kirkham, brokers and agents who possess information on the performance of local vacation rentals will also be aware of the attributes that visitors in that area look for in a home and what extras make a listing stand out.

Examine Your Rental Choices

It is simple to convert a vacation house into a short-term rental, according to Allison, albeit this is subject to any applicable municipal laws or homeowner association regulations. "This can be a way to lower the cost of second home ownership, if permitted and in a well-known destination community, but it also creates more hassle for the owner in the form of maintenance and guest issues."

According to Allison, not all of it can be delegated to a rental management business. He adds, "Income may not fully or reliably pay off financing because short-term rental demand ebbs and flows."