Vacation Homes
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By Bill Greenly--HousingInfo.com
May 15,2008
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Before purchasing a vacation home, carefully consider the costs and benefits associated with owning a second residence. Research the history of the real estate market in each potential area and don’t count on a steady source of renter’s income to offset the purchase price. However, owning a vacation home comes with an abundance of privileges and potential financial benefits. For example, if you or your family loves to ski, owning a vacation home in your favorite winter destination allows for the enjoyment of the mountain without the hassle of overbooked and overpriced hotels. You can also share your vacation home with friends, family, or even use it as a corporate retreat or reward for your employees. Owning a vacation home also has certain tax benefits depending on the usage.
Choosing the right location
Choosing the best location to purchase a vacation home in is no easy task. Many second homeowners make the mistake of falling in love with a view or initial price. However, it is vital to think about re-selling your vacation home before you decide on a specific home or location. A vacation home should primarily provide a residence that you feel completely comfortable living in. It should also be in your price range (the combination of both the primary residence and vacation home costs should not exceed one third of your income).
A vacation home should be close to an established city and should have plenty of activities in the nearby area. Finally, the area where you purchase your vacation home should be unsaturated as possible. For example, it is easier to re-sell a vacation home in an unsaturated market such as a small, but developing town near a tourist destination compared with choosing a home in a congested market with an abundance of vacation homes for sale.
Rental income
There are both positive and negative aspects regarding the rental of your vacation home. On the positive side, consistent rental income can cover a large portion of your ownership costs. It is recommended that you charge 10% - 20% more than your monthly mortgage to offset repairs and damage. When financing a vacation home, counting up to 75% of the year for rental income is possible with most major banks.
However, renting a vacation home does have its drawbacks. For example, say the primary residence of the vacation homeowner is in New York and the vacation home is in Florida. If the renters have any major problems, attending to them could be difficult. In these cases, vacation homeowners typically choose to hire a management firm that handles typical property owner duties such as collecting rent, maintaining the grounds and making necessary repairs.
Average length of ownership
According to the National Association of Realtors (NAR), most vacation homeowners plan to keep their homes for a median of ten years with only 38% of owners planning to keep their homes for eleven years or more. This fact makes it extremely important for potential vacation homeowners to research the real estate market in the area they wish to purchase a home. It is important to study the appreciation trends over a ten-year period, as well as to research the history of the rental market. If the area is traditionally a renter’s market (low rent with many homes to choose from), charging 10% - 20% more than the monthly cost of ownership may be difficult.
Options
If the cost of a vacation home proves to be slightly out of reach, choosing an alternative may still prove to be a more cost efficient way of traveling than traditional hotel or resort stays. These travelers may want to consider traditional time-shares or fractional ownership such as private residence clubs. Private residence clubs essentially divide the cost of a home into equal parts and allow the owners to share the residence. This method is less expensive than purchasing outright and does take the variable of renting out. However, private residence clubs as well as time-shares require owners to share more than they would if they individually owned. |
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