Why Vacation Homes are Bad Investments
How to Buy a Vacation Home
If you find that you are traveling to one spot for vacations year after year, you may want to think about buying a vacation home there. In the long run, buying a vacation home might not only reduce your vacation costs but can serve as a good investment. If you are looking to buy a vacation home, you need to consider the best location, the price that you can afford to pay and your future intentions for the property. Then you need to go through the regular steps for finding and purchasing a property.
Selecting a Vacation Home
Decide where you most want to vacation.If you are buying a second home, you will need it to be in a location that is optimal. Select a spot where the home will get the most use. You may be able to rent it when you are not using it yourself, but you may not. If your favorite vacation spot is a bit off the beaten track, you may not be able to earn back any income. Make sure that the location is right for you.
- Consider how far you want to travel. As a general rule of thumb, to get the most use out of your vacation home, it should be no more than a two- to three-hour drive from your primary home.
Get to know the area.If you are buying a second home, you will become a member of the community. This is different than simply vacationing at a resort or hotel for one or two weeks a year. It would make sense to visit often enough to get to know the area, the community, the people. If you have children, you may want to find out about schools in the vicinity. Look at the location through the eyes of a resident and not a vacationer.
Plan for the security of the home when you are not there.If you are only going to visit this property temporarily, then security will be an issue. Consider the safety of the neighborhood. Select a location that is likely to be safe, or think about investing in a security monitoring service that can watch the home while you are away.
Determine which amenities are most important to you.Spend plenty of time vacationing in the area where you want to buy a home to figure out your ideal location. Prioritize the area's amenities, and then look in the neighborhoods that best fit your top picks. Consider ease of transportation to and from the airport or major roadways, and whether or not you want to be able to travel easily to other locales.
Plan the reason for your purchase.Are you looking to buy a home that your entire family will use regularly right now, and then may resell in a few years? Or do you want a smaller place where you might retire? Is this home a place that you want primarily to live in, or is it mainly an investment property? The answers to these questions will help guide the kind of property you should consider buying.
- If you are considering this as an investment, you should consider its future resale value. What makes a second home affordable today could make it more difficult to sell tomorrow. Think about unsightly power lines, road noise, or a run-down neighborhood. Imagine what future home buyers will see. What will this part of town look like in five to 20 years? And the quality of local schools is always important, unless you're buying in a retirement community.
Decide whether or not to rent out the home when you're not using it.If the home is furnished and in a popular location, demand will not be a problem if you want to rent it out. But keep in mind that someone needs to market the property, manage the booking calendar, clean the unit between renters, collect fees, and more. Make sure you're willing to do the work, or willing to pay a rental property management company to do it for you.
- If you are hoping to rent the property while you are away, you should investigate the local zoning requirements or other housing regulations. This may not be allowed in all areas.
Hunting for a Vacation Home
Use a local real estate agent.While the Internet allows buyers to do a great deal of the house hunting on their own, an experienced real estate agent in the location where you want your second home can be very valuable. A local agent can watch the market for you and let you know when properties become available. A local agent will know the community and can help advise you with neighborhood selection, safety and security, and resale considerations.
- When you are selecting an agent to help you buy a property, you will want someone with experience and connections in the community. Ask how long the agent or agency has been in business in that location. Ask about the agent's own involvement in community groups or other organizations.
Search Internet real estate sites.There are numerous Internet sites that help in searching for real estate to purchase. Using these sites, you can select a specific location and narrow your search by the size of the property, approximate value, and even certain amenities that you want available. When you run a search on one of these sites, you will obtain a list of properties that meet your specifications. Each listing will give you the contact information of the owner or selling real estate agent. You can then contact them to make an appointment to visit and see the property. Some of the most common, reliable sites are Zillow.com and MLS.com.
Check the local newspaper for listings.Particularly if you are looking for a vacation home in a small, rural area, you may find the best information in a local or regional newspaper. The paper might even have a separate section for vacation properties either for sale or rentals.
- Many print newspapers, where you might begin your search, will also allow you access to an online search feature. For example, if you are looking in the greater New York area, you can look in the New York Times or use its online features.
- Another print newspaper that incorporates an online search feature is the Los Angeles Times
Drive around the town.One way to familiarize yourself with the neighborhood, while also doing some house hunting, is simply to drive around the community yourself. You can get to know the neighborhood while watching for “For Sale” signs at the same time.
Planning the Finances
Determine the purchase price you can afford.Buying a second home is a very big investment. The first cost that you have to plan is the purchase price of the home itself. You will need to review your own income and current monthly expenses. This should give you an idea of the available cash that you have that you can put toward a vacation home. If you have the luxury of being able to buy the property outright, that’s terrific. If not, you will need to plan for a mortgage and the additional monthly payments.
- The median price for vacation homes in 2013 was 8,700. This is a national average, so the price may fluctuate widely, depending on the location you select.
Plan for the costs of furnishing a second home.When you go on vacation to a hotel or resort, such things as dishes, silverware, food, towels, laundry soap, and other household necessities are provided for you. But when you buy your own vacation home, you must consider the cost of providing all these for yourself. This may be small compared to the total cost of the home, but all the little items can add up.
Estimate the expenses of maintaining the home.In addition to the purchase price and the additional costs of providing for yourself in the home, there are numerous costs related to owning any home. You will need to research these for the area where your prospective vacation home is located, and add them in to your cost estimates:
- Property tax. You can research this at the town hall or ask a local real estate agent for some estimates.
- Homeowner’s insurance. Your own insurance company, if it does business in the state where your vacation home is located, should be able to help you with this.
- Utilities, water and trash. Even if you are not living in the property all year, you probably will be responsible for these costs all year.
- Winterization. If the vacation home is in an area that gets cold or freezes, and receives snow, you will need to invest some money in making sure that your water pipes are safe. You may also be required to pay for snow removal, even if you are not present.
- Security monitoring.
- Landscaping or property maintenance.
- Homeowner’s association or condominium fees, if applicable.
Plan for the cost of vacation items.If you are planning to use this vacation home on a regular basis, you will probably wind up making additional purchases of items to help you enjoy your vacation. This may include all or some of the following:
- Skis or lift costs
- Kayak, canoe or other boating supplies
- Admission to area attractions
Making an Offer and Purchasing Your Vacation Home
Investigate the fair property value.After you have selected a potential vacation home, you will need to decide a fair purchase price. A local real estate agent should be able to help you with information about recent sales of comparable properties in the area. Additionally, you can search for property values on Internet real estate sites like Zillow.com and MLS.com.
- For example, if you visit www.zillow.com, you will see a bar in the center of the screen with four options. Select “Zestimate.” You will be prompted to enter the property address. You will then be redirected to a screen that shows the property location and gives you an estimate of its fair value. It also shows the estimated sales information for similar properties in that city or town over the past several years.
Work with the broker to submit an offer.If you believe that the asking price is reasonable, then you may want to submit an offer that is near the asking price. If not, then you may offer a lower price and expect to negotiate to end up at a price in the middle. When submitting your offer, consider the demand for properties in the area. If you are looking in a location with high demand, then you may need to submit an offer that is nearly up to the asking price.
- You should be able to find out how long the property has been on the market. If it is a new listing, then the buyer’s may be expecting to get an offer close to their asking price. If it has been on the market for some time, you might be able to offer low and get a bargain.
Negotiate a final price.Unless you make an offer for the full asking price, the seller is likely to come back to you with some kind of counteroffer. You may then respond to that counteroffer. This procedure can continue for several rounds until you and the seller reach an agreement. In this negotiating, you may also want to ask for certain terms or conditions as part of your offer:
- Closing costs.
- Time for financing.
- Seller payment of real estate taxes.
- Prorating condo or homeowner’s fees.
Complete the purchase.When you and the seller agree on a price and the terms of the sale, the real estate broker should then handle most of the details of the purchase. You will need to secure your own financing, unless you have the resources to pay cash for the property. This process generally takes a number of weeks before you are able to have the closing. During that time, keep in regular contact with the broker to make sure that no surprises arise that could change the purchase of the home.
- Depending on the property, the lending bank, and your level of interest, you may wish or even be required to conduct a home inspection. You will want to make sure that all the utilities are functioning, that the house is in solid condition, and that any defects are properly noted. If you find serious deficiencies, they could result in a renegotiation of the sale price.
Video: Should I buy a vacation home?
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