Buying a vacation home or second home should be as simple as buying any other residence. But if the property is located in a resort area, recreational area or another state, there are several factors that should be considered before making an offer. Let’s look at five tips for successfully buying and owning a vacation or second home.
1. Research The Area. A major cause of buyer’s remorse involving buying a vacation home is not knowing the area very well. Imagine you’ve just spent a wonderful week at a beachfront resort with white sand beaches and five star service. You fall in love with the area based on your experience at the resort. While there, you look online and see that a beautiful cottage near the resort just came on the market and the price is affordable. Should you consider the purchase? The resort provided everything during your brief stay – even made the bed for you. Restaurants were an elevator ride away. Life in the community would be different. You would need to know where to shop for food and household items, or pay someone to provide those things for you. It may turn out that once outside the gates of the resort, the area isn’t as attractive as you hoped it would be. It’s best to research the community from a local’s viewpoint before making an offer on that cottage.
2. Research All Costs Of Ownership. Most vacation or second homes have the same acquisition costs as a primary residence: purchase price, inspection fees and closing costs. They also have many of the same recurring costs, such as taxes, insurance, HOA fees (if applicable), maintenance and utilities. Create an operating budget with your agent and use their local knowledge to identify all potential costs of ownership.
If the home is located where weather changes drastically from season to season, special services might be required to maintain the property. For example, preparation for winter might include installing storm windows, removing floating docks from lakes that freeze and placing boats in dry storage. Once snow hits, residents may be automatically assessed the cost of snow removal from neighborhood streets and charged extra if they opt for clearing their sidewalks and driveway clearance, too. When snow thaws in spring, there will be the cost of removing the storm windows, putting the dock back in place and launching the boat.
3. Know The Rules If You Intend To Work In The Home. Whether you’re simply staying in a second home and continuing your usual work routine or vacationing and just want to keep up with things back in the office a few hours each morning, know if any of your business activities might trigger certain requirements. For example, if you have a business that involves clients visiting to receive services in your home office, let’s say you’re a psychologist or financial planner, you may need a business permit. To take that example further, if your second home is in another state that has a state income tax, you may need to file and pay income taxes in that state based on the amount you earned while working there. Check with your tax professional regarding your specific situation.
4. Know The Rules If You Plan To Rent Out The Home. Many vacation home owners rent out their home for short term stays to help pay the costs of owning it. Check with local authorities or property management companies regarding possible restrictions on rental operations where the home is located. Some communities require minimum stays, do not allow homes to be listed with services such as AirBnB or outlaw rentals altogether in certain areas. If buying a vacation home in another state, check with your tax professional regarding the potential for rental income to trigger state tax filing requirements.
5. Know The Re-Sale Market For Your Vacation Or Second Home. In general, vacation homes and second homes are re-sold more often than homes used exclusively as a primary residence. While you may go into second home ownership intending to hold the property for several generations – plans can change. When remodeling or making improvements, consider the impact changes will have on future marketability of the home.
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