Many Americans dream of someday being able to buy a vacation home. More and more, these dreams are becoming a reality as the vacation rental industry has skyrocketed in recent years. In October alone, demand for second homes across the US was up 100%! Following these trends, investors are flocking towards popular vacation rental destinations across the US. Before you jump on the bandwagon, or on that new jet ski, you’ll want to understand these ten factors to help make a better purchasing decision.
1. Your Motivation
First, determine your primary purpose for buying a vacation home. Do you want a retreat where you can kick back with your family and friends or do you want a hefty return on your investment?
2. The 1% rule
A real estate rule of thumb says that the monthly rent earned on your investment property should equal or exceed your monthly mortgage payment. This is true for when you buy a vacation home. If your projections indicate this will be true, this is a good sign you’re on the right track to break even on your asset.
3. Condition of the Property/Location
It’s crucial to determine that the condition of your property is livable before you buy it. You should leave no stone unturned when assessing property quality. This includes checking for structural damage or any hidden faults. To best accomplish this, be sure to find a quality inspector to guide you through this process.
4. Condition of Neighborhood
The condition of your neighborhood will reflect on the condition of your property. That doesn’t just refer to manicured lawns and holiday decorations. Factors like the crime rate and noise pollution in the area can dramatically alter not only the value of your home but its attraction to potential renters.
5. Upkeep and Maintenance
When searching for vacation homes, keep in mind you are investing not only in the property but its future maintenance and upkeep. If you think the job will be too much to handle on your own, you will likely need to hire a vacation rental management company or an Airbnb manager.
Find out if the property you’re interested in comes pre-furnished and decorated or will require your attention. You may be on the hook for new bedding, furniture, and kitchen appliances to make your house more attractive to your guests.
7. Property Management
If you do not live near your new property, then you should consider hiring a property manager to take care of the home in your absence. Guests require a lot of attention and a local intermediary can remove a lot of the heavy-lifting. Property managers also understand the tax and property laws that impact your asset.
If you are buying a property in the hopes of generating an income, then you will have to make sure that the location of the property is attractive to renters. How far is it from popular restaurants? Is it close to local attractions like popular lakes or beaches? What’s the property walkability score? Putting yourself in the shoes of your potential guests can go a long way towards making an informed decision on whether to pull the trigger on any specific property. This is essential work to do before you buy a vacation home.
When you buy a vacation home, don’t forget that you will have to pay taxes on it. If you do, don’t worry, the IRS will remind you. Consult your accountant and mortgage specialist on what you can expect to pay in taxes. Make sure you know the unique situation of your vacation home and the state and county laws that will affect your property. Finally, be sure to check for tax incentives that you can apply towards your second home.
10. All-in Cost
Once you’ve completed all the above, tally up the aggregate cost of owning a separate home. Include property taxes, insurance, maintenance, and utility bills in your calculations. Consider hidden and tangential costs as well, such as property management fees and renter They’ll make owning a vacation home as easy and carefree as an afternoon on the beach! 🏖
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