Buying vacation property is not the foolproof investment that it once was with markets ever changing. However, depending on your situation, it may still be a good decision. The early 2000’s provided wonderful returns on second homes, but that was short lived. Many of those who jumped to invest in second homes quickly saw dwindling gains in the following years. Owning property is almost always beneficial in the long run though. Is buying vacation property financially a good decision for you? Hopefully, this article will cover some of the things you should mull over before making such a large investment and help you understand whether you are financially ready.
Using a mortgage broker is often in your best interests unless you are a professional in the financial industry. The options you have before you when trying to obtain financing for your home are numerous, and involve many small factors. A mortgage broker can break down your options into easy to understand information, and may have knowledge or connections to get you a deal you wouldn’t have known about otherwise.
Your financing or mortgage, should you need one, is only one factor of understanding if you can afford to be buying vacation property. Location plays an important role in your investment as well. Depending on where you choose to buy, you may be faced with incredibly high insurance rates. When you think of vacation property, are you thinking an ocean side getaway, or a cozy, snow covered cabin in the mountains? If so, you have to realize that these kinds of areas are more likely to suffer natural disasters and other weather related downsides. Therefore, you should shop around and ensure that you can find insurance which is affordable to you. Another element that you should look at regarding location is the law. You should research everything that may affect your property over time such as development, and zoning laws for the area.
After buying your vacation property, you will need to keep the place up! Consider the amount of money it will take for repairs and upkeep including plumbing, roofing, painting, lawn care, and more. You can do this, hire an individual, or pay a management company. If you choose to use a property management company you can bet on giving them up to 50% of any rental income stemming from renting your property to others.
If you rent your vacation property for more than 15 days out of the year, then you will have to report everything to the IRS. You’ll need all of your rental receipts to show for your income, and you can deduct a number of things including maintenance, insurance, repairs, etc. You may also be able to deduct some travelling expenses. However, if you don’t rent it out for at least 15 days of the year, you don’t have to that income. Should you decide to sell it, then the income is considered a capital gain. However, there are ways around this such as moving in and living there for two years before you choose to sell it.