So you’re thinking of buying a vacation home? Amazing! Can we be friends? Having a second home for getaways can be a respite, but there are several things you should consider before making such a substantial long-term investment.
Budget is one of the most important things to consider when making such a large purchase. A vacation home is something you want to bring joy, relaxation, memories, and potential income into your life. Thus, you should try not to overextend your finances to the point where it becomes stressful. Having a good idea of your budget can help you set accurate expectations. While you might have dreams of a modern house on the beach, that might not be realistic given how much you feel comfortable spending. You should also decide if you want to include a separate budget for renovations or customizations, and don’t forget to include additional expenses such as HOA and annual maintenance fees.
What kind of vacation home are you looking for? A beach retreat? Something in a major city? A cabin off the grid? Perhaps you have a specific location in mind or have narrowed it down to several options. If you haven’t spent much time in the area where you want to buy, you may want to plan a trip there. You’ll be spending a lot of your free time there, so you should be sure you love it!
Once you have a location picked out, it will be easier to narrow down your choices while taking your budget into account. It can be useful to make a wish list of features and research how that fits into your price range. It might also be helpful to download some real estate apps where you can add specific requirements into the search function, such as price, square footage, location, or number of rooms. Looking at the list that comes up will give you a better understanding of exactly what you can afford.
It’s important to consider both how you will get to your vacation home from your permanent residence, and how you will get around the area your vacation home is in. Do you only want to purchase a vacation home within driving distance? Then, consider adding gas to your budget if you plan to drive there often. If you are only interested in a far-off location, think about whether you’ll realistically have time to travel there frequently and how you’ll factor transportation expenses like flights or rental cars into your budget.
Many people buy vacation homes with the hopes of spending time in it with extended family or friends. If this is part of your plan, it might change your priorities in terms of size, number of rooms, amenities, or accessibility.
Even if you’re primarily buying a vacation home to stay in yourself or with friends and family, you might be considering renting it out to offset the costs. Income from renting your home for short- or longer-term stints can help you build equity and pay off any debt you accrued from the home purchase.
To research the rental market in the area you’re looking to buy, it can be helpful to analyze other homes in the area that are used as rental properties and see what they have to offer that attracts renters. You can also speak to local real estate agents who might be able to provide some insight on what accommodations are the most desirable and what realistic rental pricing is. If you are going to be renting your property out, you may even be able to make use of specific financing, like Vacation Rental Loans, to help you buy the place initially.
There are so many factors to consider when shopping for a vacation home that it can be overwhelming to grasp the bigger picture of your finances. Deciding on a vacation home strategy can be an excellent time to begin working with a financial advisor. While you might be getting advice from your real estate agent, mortgage broker, or even family members, the right advisor should be able to provide you with a bigger picture that accounts for long-term goals. An advisor can have the whole scope of your financial life in mind, and help you make decisions from there.