Vacation Home or Short Term Rental? To Buy or Not?

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Real Estate

Have you thought about buying a second home?


With interest rates so low and many home owners seeing a jump in equity in their homes “buying a second home” and “buying a vacation home” have become some of the top Google search trends.


Many vacation areas like Boise, Idaho, Palm Springs, Mammoth and Lake Arrowhead saw a boost in home sales in the last half of 2020 from those looking for a vacation home or vacation rental property. Some areas have seen a boost in sales as much as 35% year over year. 


What once was spent on travel and hotels is now being reallocated to a down payment to purchase a vacation home or rental. With interest rates at the lowest rates even for second homes it is becoming an easier reach for many people, especially if they can operate it as a business using AirBnb or VRBO.


Here are some things to consider when purchasing a second home:


1) How much can you afford?

While you may have already analyzed how much you can afford for a second mortgage, don’t forget about potential additional expenses that may come up. Additional expenses in a vacation property may include:

*Associated taxes,
*Insurance, which may be higher if you intend to rent out your property,
*Utilities,
*HOA and condo fees,
*Other items you may need such as furnishings or seasonal gear like water and snow skis, kayaks, jet skis, boats or other toys,
*Property management or vacation rental site fees.

This will help you narrow down a more realistic price point for your vacation home search.

You may wish to consider purchasing a property with other family members as well. Make sure you have your ducks in a row and know who is actually going to be making the purchase.

2) Decide what your goal for your second home is.

What exactly do you want or expect from a vacation home? Do you want peace and quiet where there are few neighbors and your privacy is a top priority? Or are you looking to be close to downtown, restaurants and nightlife? Is waterfront access with a dock, launch ramp and/or boat slip a must? Is proximity to a medical care including a large hospital or urgent care medical office important?

“Location, location, location!” is such a key factor to consider in this decision-making process because you can’t pick the property up and move it once you own it! Unless, of course, it’s a mobile home or house boat.

Perhaps you already own a home near the ocean and are looking for a real change of scenery. In that case, a mountain top log cabin or big city condo might be the way to switch things up.

3) What lifestyle are you looking for?

Are you looking to entertain multiple groups, get away from everything and everyone or feel like you’re in the lap of luxury? If you are more comfortable in a small quaint cottage than you are in a luxury multi-unit high-rise condo, then narrow your search to types of properties which suit you best.

If you can’t possibly survive without valet parking or knowing that there’s a back-up generator in place should the power go out, be sure you have the creature comforts important to you.

4) Plan for the future.

How will you use this home away from home? Do you expect to use it multiple times a year or possibly every weekend? Will this ultimately become your retirement home? Do you plan to rent out the property while you’re not using it? 

5) Do you plan to use the home as a short-term vacation rental?

If you do you may want to research what types of rentals are allowed in the cities and communities you are looking at. Using the home as a vacation home for investment purposes may have special implications for financing. You will want to discuss this with your mortgage specialist if you are financing the property and not paying cash for it.

A lender may require that you obtain an investor type of loan rather than a conventional mortgage. This may also be the case with certain types of condo units in communities where rentals are frequent. While you may not plan on renting your unit out, the lender may consider this to be a rental community.

Know what the rental market commands in the area where you plan to buy your vacation home if you do decide to rent it out. There are many factors that influence rental prices and you don’t want to come up short if you are counting on that income to offset the cost of the property.

There are costs associated with renting out your property to consider such as advertising and property management. You may not be there to fix the fridge or air conditioner if it goes on the fritz in the middle of your tenant’s long-awaited vacation but it will need to be taken care of quickly.

6) Protect your investment.

Even in the best of neighborhoods there are times when an empty home is attractive to the wrong people. You may wish to consider a security or surveillance system or a property manager that can give you peace of mind while you are away.

A frozen pipe or a leaking toilet can do considerable damage in a short amount of time. If it’s in snow country, who will plow or shovel the driveway? It also helps to make friends with trustworthy neighbors so that they can keep an eye on things.

7) You may incur a potential increase in taxes.

You will most certainly pay property taxes on your vacation home, but also consider consulting an accountant for any other tax issues regarding your vacation home such as rental income or selling it if you reside in another state. Some states charge buyers and/or sellers a conveyance tax when a property is sold by or to an out-of-state resident.

8) Get the ball rolling.
Inventory of vacation homes is low along with other categories of real estate, and this has helped push the median vacation and investor home purchase price higher.

If your goal is to own a vacation property, then now may be one of the best times to jump into the vacation home market because mortgage rates are still quite low and prices of homes may continue to rise.

Whether you're looking for a home in California or anywhere really, we have connections is many key areas around the country. Let us help you find a great Realtor to help you find your vacation home!