There can be few people who have not seen the popular TV programs featuring couples, families, investors, etc., considering the decision whether to be a vacation home buyer or not. However, not everything may be as plain sailing as you would hope, and very often some of those deals of what seemed to be the perfect house or location have quickly faded. Here are a few tips to help you avoid the money pit trap.
Mistake #1: Renting The Vacation Home To Holidaymakers
Wherever you choose to buy your vacation home, it is likely to be in an area where there are lots of tourists or holidaymakers, especially if you are considering renting it out during the holiday season to recoup some of your investment. Many people buying for the first time are under the illusion that they will be able to recoup all their money through rental, but this is generally not the case. You may be able to rent out and gain a profit, but this is not guaranteed and there are many reasons why this idea may fail to produce the desired income. Ensure you consider the rental market on a realistic basis and under-estimate, rather than over-estimate the income. If you are just buying a vacation home for your own use, without considering the tourist rental market, then any later decision taken to rent out the property will be a bonus.
Mistake #2: Not Having Enough Money To Buy
If you have saved money to be able to purchase your vacation home and have some financial reserves as well, then you are unlikely to run into issues as you will only buy what you can comfortably afford. You should ensure you are comfortable financially before committing yourself to buying a second home. If you have not factored in pitfalls, setbacks, renovations costs, etc., in both your primary home as well as your vacation home you may find yourself financially stretched without a way to make up the difference or recoup any losses.
Mistake #3: Opting for the Wrong Financing Solution
Whilst it is true you may be able to get a mortgage to enable you to buy your dream vacation home, you will be subjected to more stringent financial checks and the mortgage rates may be higher. Ensure you can afford the repayments if this is the route you are considering.
Mistake #4: Not Knowing Your Tax Liabilities
You may be required to pay more tax if you own a vacation home. You need to decide whether it is for the use of you and your family, or you want to rent it out. There are different tax liabilities for both these options and it is your responsibility to get it right.
Mistake #5: Depreciation Or Decline In Property Market
The housing market can be very volatile and even if you are buying a vacation home just for your own personal needs, you should ensure you have the means to protect your financial position. For example, if you lose your job or the vacation home suddenly develops an expensive problem that needs to be rectified urgently. A change on your personal circumstances can also have a great effect on your finances. Ensure you have considered all eventualities before proceeding with a purchase. Property prices may also dip or decline, so if you decide to sell the vacation home, you may end up receiving less money for it and see a loss rather than a profit.
Talk to a Realtor
Why not make an appointment with a reputable realtor to discuss your plans? You will receive advice without obligation, which will be indispensable.
