Although owning a vacation home may sound like a lot of fun (and it can be!), don’t purchase without doing some homework first. Unlike owning a timeshare where you are likely to have some concerns taken care of like housekeeping, security and other measures, buying a second home can come with a lot of unexpected surprises for a buyer who has purchased without doing research prior to sale.
If you are thinking about purchasing a second home – either for your own enjoyment or to generate rental income, or a combination of the two, here are our top 3 tips for things to take into consideration before you buy.
Make sure you take into account the total price of ownership – not just the mortgage costs
Although there are the obvious costs of owning a second home like the monthly mortgage payment as well as property taxes and insurance, don’t forget that you’ll also be responsible for the year ‘round expenses like landscaping, utilities (gas, electric, etc.), trash removal, snow removal, etc. Many buyers forget that a property will have many expenses present even if you’re not there, and the last thing you want is unexpected sticker shock.
Will you need to hire a property manager to watch it while you are away?
Another expense you may need to take into consideration is whether or not you’ll want to hire a property manager to maintain and watch over your second property while you are away. Many residential property managers charge 10% of your mortgage, although a local search of property managers will give you more specific details on what you can expect to pay. The upside of having a property manager on call is that you’ll have someone to contact if you have any questions or concerns about your property. If you hear about storms hitting the area your second home is in, it’s nice to be able to call someone who will be able to get into your home and survey for any potential damage. On the downside, property managers are an additional monthly expense, which can be hard to swallow, especially if you do not use you second home very often.
Do you plan to try to generate rental income?
One thing to consider when buying a second home is whether or not you will use the home to try to generate income. If you plan to, that may impact where and what you buy. Living near the beach may have been sufficient for you, but could you earn significantly higher rental fees if you buy beachfront property? Is the rental property market saturated where you’re looking? Are there enough tourist attractions to bring in steady renters? The upside of considering using your second home is of course the rental income. The downside is that renters may damage your property, your second home won’t truly be “all yours” and you’ll want to weigh the impact of the increased income stream on your personal income taxes.