Thinking of Buying a Vacation Property?
We’ve been thinking about short term and long term goals at our house lately. It’s been so much fun to dream up a new landscape as we get the boys through high school. One goal that continues to pop up is the idea of buying a vacation property. Turns out, there is a lot to think about when traveling down this path. Here are some things to keep in mind.
Buying a second property, whether for extra income, enjoyment, or both, is a step that many decide to do in their lifetime. In fact, according to the National Association of REALTORS®, in July of 2019, 11% of all property sales were by vacation and investment buyers.
Of course, the financials are something you will need to take into consideration with your mortgage lender (and I would be happy to put you in touch with my favorite lender Nancy Spiro, with Movement Home Mortgage. The key question you need to consider as you are dreaming of the sun and/or surf is are you going to be using this property exclusively for your family’s use or do you intend to rent it out? Generating income by renting it out (such as listing it for rent on AirBNB or VRBO) while you are not using the property is a good way to offset expenses. Here are a few things to keep in mind:
· Not all areas allow short-term rentals. Condo associations, HOAs, and even some cities have restrictions on short term rentals, so it is a good idea to learn about the local ordinances so you don’t buy something and plan on relying on income that you can’t actually receive.
· If, for tax purposes, you are treating this rental as a business, know the usage rules. Offsetting your expenses via the tax code can be another way to minimize expenses (and perhaps even receive tax benefits). However, you are limited to only using your property for enjoyment to 14 days per year. Additional occupation is allowed if you are doing reasonable maintenance and repairs. Talk to your tax professional for more information.
· Make sure your lender knows you plan on using it as a rental. Some mortgages stipulate that a property can only be used as a primary or secondary residence, but that clause can be changed if the lender knows what you intend to do. Sometimes the interest and fees are higher for a rental. Let your lender know upon application your intent to avoid surprises later.
· Make sure your insurance agent knows you plan on using it as a rental. Ensuring you are covered for renter injuries, liability, and possibly for loss of use will bring you peace of mind. I advise having a meeting with your insurance agent so her or she understands the scope of what you are planning on doing.
· You need someone to guide you through the process and provide local insight. If you plan on purchasing a vacation home outside our area, let me find you someone who would be a great local resource. I have connections with great agents all over the country who I can call on to help you.
Owning a vacation property can be enjoyable and lucrative, but it pays to do your homework up front. I have a few more things for you to think about, so let’s talk about your summer rental dreams and make a plan!