1. How often will you use it?
It’s important to think about long term plans when buying a second home. Will this be a place to eventually retire? Will family and children have access to the home? Do you plan to let people rent it out? Is it an easy place to get to? These are all important factors in deciding if and where to buy a second home.
Consider going back to that same location as often as you plan to use the vacation home to make sure this is the perfect location for you. If a change of venue is what you desire more so than owning property, you might look at other options like Home Away or AirBnB, where you can curb your appetite to get away without compromising early retirement goals or a commitment to stay debt-free.
2. How will you use it?
Many buyers plan to use their vacation home seasonally, in which case banks will require at least 20% down to secure lending. This is important to consider when budgeting for a second home. Safety is also a concern of seasonal owners, so it’s wise to check crime Opens in new window in the area if you plan to leave your home unattended for stretches at a time. Tools like Honeywell Total Connect allow you to turn your smartphone into a smart home with capabilities like video viewing, GPS asset tracking, real-time alerts and mobile control of even your lights while you’re away.
A possible solution to leaving your new home primarily vacant (and to create cash flow to help subsidize new expenses) is to join the 89% of new vacation Opens in new window homeowners who are renting out their homes within the first year. While welcoming unknown renters into your home can be unnerving, try first advertising among friends, peers and co-workers.
Sites like VRBO provide the know-how and tools to make short or long-term rentals a breeze. Finding a local property manager Opens in new window is a great way to avoid a potentially devastating water leak, or to promptly handle repairs that renters might need.
3. Can you afford it?
Before taking out another home loan, a financial health-check is advisable. Make sure you’ve maxed out your 401(k) contributions Opens in new window, covered your life insurance needs, and have a back-up emergency savings account fully funded prior to taking on additional debt.
In addition, the price of a vacation home alone does not indicate the total impact to your bottom line. Below are some costs that should be on your radar:
- Utilities: gas, water and sewage, electric, cable, and internet (and keep in mind many of these will still need to be paid, albeit at a lower rate, even if you’re not using the house for parts of the year)
- Home furnishings (including bedding and utensils for a functioning kitchen if you plan to rent the house out) as well as the gear you’ll need to make the most of your time off: paddle-boards, boats, mountain bikes, snowmobiles
- Homeowners insurance and property taxes
- Property maintenance
4. Where should you buy?
Proximity to your primary residence is likely the best indicator for the frequency of use. If you plan to visit as much as your schedule allows, choosing a home with a reasonable commute will ensure regular use.
Alternatively, if you intend to purchase a home further away make sure you get to know the area where you’re buying. Even if you’ve been visiting the same spot for years, it’s important to get to know the area from a non-tourist perspective. Talk to locals, visit during the off-season, and do your research. The more you know about the city or neighborhood your home is in, the smarter your home purchase will be.