The statistics are very clear in what they’re trying to tell consumers – vacation homes are now a big hit for home buyers. According to the National Association of Realtors, second home purchases reached 1.13 million in 2014, a 57 percent year-over-year increase over 2013, and the highest on record since the NAR began tallying this stat in 2003. This has been driven by low mortgage rates and a healthy stock market, among other variables, as well as the continued pattern of the Baby Boomer demographic heading to retirement. But what should you consider before buying a vacation home?
According to HSH.com vice president Keith Gumbinger, some of the most attractive vacation home deals may no longer be available. As such, this may prevent you from finding an affordable vacation home, especially if it’s treated like an “investment property,” or a home that you won’t be living in for the long term. Gumbinger says that rates may be about a quarter of a percentage point to a full percentage point higher if a consumer treats this property like an investment.
In addition, Gumbinger believes that consumers should consider more than just the purchase price. There are also carrying costs (from taxes, utilities, insurance, etc.) to take into consideration, and if you’re thinking of renting out your property to vacationers, you shouldn’t be too overconfident either. “Plan for less than optimal rental conditions at times where you’ll still be on the hook for all those costs, regardless of cash flow,” he advised.
According to Zillow chief economist Stan Humphries, location is another primary concern – he believes buyers should visit the desired area “many times over” before making their final decision.
There are still other things you should consider before buying a vacation home. Making sure the property is within driving distance from your primary residence is a sound decision – think about how hard it will be to do maintenance or make needed repairs if the vacation home is several hours away. It’s also important to think about your plans for the home, said Gumbinger, but regardless of whether you want to buy the property for your own personal use or to use it as a means to make additional income, he believes you need to “look at the investment with a cold financial eye.”