What to Consider Before Buying a Vacation Home

Buying a vacation home seems like a dream investment, but it’s a big decision that requires a lot to think about first.

“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,” says Austin Allison, co-founder and CEO of Pacaso, a San Francisco-based real estate service that aims to expand second home ownership.

“There’s something relaxing and special about revisiting your favorite hiking trail or your favorite coffee shop and having those moments of peace and reconnection that people value more now than ever before,” he adds.

[READ: How to Convert a House to a Vacation Rental.]

But just as planning for a vacation takes a lot of time and consideration, so does buying a vacation home. Here’s what you should consider before you make a purchase.

1. Weigh the pros and cons.

2. Be prepared to take on more responsibility.

3. Consider your lifestyle.

4. What are your financial goals?

5. Location is key.

6. Work with an agent who specializes in buying vacation homes.

7. Look at your rental options.

8. Answer the question: Is now a good time to buy a vacation home?

1. Weigh the Pros and Cons

You may be set on buying a vacation home, but you still need to consider the positives and negatives. Some of the pros include:

You can rent it out for extra income. You could create a passive income stream by renting out your vacation home to travelers.

It’s an investment. Not only does a vacation home offer rental income, but the property could also appreciate over time. Vacation rentals can increase in value, especially in areas with growing market demand.

It saves you money on your next vacation. Instead of spending money on a hotel or other short-term rental, you could save by taking a trip to your vacation home.

There could be tax benefits. There are significant tax advantages available to second home owners, such as deductions on your property taxes and mortgage interest. You may want to speak with a tax professional to discuss taxes on your vacation home or rental.

It could be an excellent place to retire. Depending on the location of your vacation home, it could be a great place to retire in the future.

But there are also cons:

It’s expensive. Similar to your primary residence, you’re going to be paying the mortgage, property taxes, insurance and utilities.

There could be unexpected expenses. Owning a home comes with unexpected expenses. Plan to have a cash reserve ready to go for emergency repairs or routine maintenance.

It requires time and effort to maintain. You need to make sure your home is secure, even when you aren’t there. If you plan to rent out your vacation home, you also need to make sure the property is cleaned and well-maintained between each booking and be on call for any potential problems.

The down payment could be substantial. The down payment for a vacation home or second home is often bigger than it was for the mortgage on your primary residence. However, this depends on the lender. According to Chase, you will likely need to put down at least 10% because a second mortgage generally adds more of a financial burden to the homeowner.

2. Be Prepared to Take On More Responsibility

“While there are many tempting reasons to buy an investment property, it’s clear that sole ownership of a second home comes with steep downsides, including a heavy financial responsibility and time commitment,” Allison says.

Allison also points out that the biggest mistake second-home buyers make is only thinking about the benefits of second-home ownership and ignoring these ongoing costs and hassles.

While day-to-day operations can be outsourced to a property management company, you are still financially responsible for maintaining the property. This cost can go up exponentially if you decide to rent out the property.

“Maintaining a home at a luxury level with contemporary design, high-end furnishings and decor, top-notch amenities and appliances, regular cleaning and maintenance comes at an even higher cost and larger time commitment to care for the home properly.”

3. Consider Your Lifestyle

How often do you plan to use your vacation home? Will you rent it out when you aren’t there? Who will take care of the property when it’s vacant?

“I’d recommend that interested buyers consider their lifestyle and how they plan to use their home, how often and who will take care of it when they’re not there,” Allison says. “There are nearly 10 million second homes in the U.S. and the majority sit empty 10 to 11 months of the year.”

4. What Are Your Financial Goals?

Daned Kirkham, senior director of real estate at Vacasa, an international vacation rental management company based in Portland, Oregon, says that all vacation-home buyers should establish clear financial goals early in the buying process.

“Is the buyer looking to generate income or simply cover costs? How much will the buyer use the home themselves or allow friends and family to use it versus welcoming paying guests? Is the buyer considering using a full-service manager like Vacasa or taking on the responsibility of management themselves? These are all important questions to address up front,” he says.

Kirkham also specializes in vacation rental home sales, and he says that specialized real estate agents should be able to offer rental income projections based on competitive set data to ensure a specific property meets a buyer’s financial goals.

[Read: The Guide to Buying a Home.]

5. Location Is Key

According to Pacaso’s 2022 Second Home Attitude Report, location is the most important factor in the purchasing decision for second-home owners and aspiring homeowners. Most people who want a second home would prefer a house on the water, like a beach house or lake house, followed by a home with a view of mountain tops.

While a beach house may sound like a dream, it may not be realistic if you have to catch a flight whenever you want to visit. Allison noted that the report uncovered that two-thirds of people (64%) commute or expect to commute to their second home in four hours or less and the majority (87%) want to drive.

6. Work With an Agent Who Specializes in Buying Vacation Homes

You should work with a real estate agent who specializes in buying vacation homes and understands how they are different from primary residences. The National Association of Realtors provides training and accreditation for certified vacation home agents, called Resort and Second-Home Property Specialists.

If you want to convert your vacation home into a rental property, a real estate specialist will also have a better understanding of local laws. “They’ll be aware of local regulations and the permitting process, which can be nuanced depending on zoning,” Kirkham explains.

“If your agent is less familiar with local regulations, be sure to do your due diligence and contact the governing city or county to understand how a home is zoned and how short-term rentals are regulated locally,” he adds. “Even if the home previously operated as a short-term rental, that’s not a guarantee.”

A specialized agent can also help guide the buyer toward a property that makes the most sense. Kirkham says that agents and brokers who have data on local vacation rental performance will also understand the home features that guests in that market are seeking and what amenities help a listing to stand out.

[Read: Rent to Own 101.]

7. Look at Your Rental Options

A vacation home can be easily turned into a short-term rental, which Allison says is subject to applicable homeowner association rules or local laws. “If allowed and in a popular destination community, this can be a way to reduce the cost of second home ownership, however, it also creates more hassle for the owner in the form of maintenance and guest issues.”

Some of that can be outsourced to a rental management company, says Allison, but not all of it. “Also, short-term rental demand ebbs and flows, so income may not fully or reliably pay off financing,” he points out.

8. Answer the Question: Is Now a Good Time to Buy a Vacation Home?

This can be different for everyone, and the current market definitely plays a vital role. Home prices have skyrocketed since the onset of the pandemic due to the high demand for housing without the supply to meet it. Recently, mortgage demand has fallen due to increasing concerns about the economy.

Don’t feel forced to make an offer on a vacation home just because it’s available and within your price range. Buying a house is a big financial investment, so you may want to speak with a financial advisor and a real estate professional before making the commitment.

More from U.S. News

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What to Consider Before Buying a Vacation Home originally appeared on usnews.com

Update 12/12/22: This story was published at an earlier date and has been updated with new information.

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