Thinking of Buying a Vacation Home?

By on May 15, 2013

There are many reasons to buy a second home – from recreation and vacation experiences to investment and retirement planning. Despite the slowly recovering market, real estate investing can produce high returns and boost your personal wealth, but it is always important to understand and consider some essential factors before purchasing a vacation home.

Whether you see dollar signs or dreamy vistas, follow these five steps to put you on the path toward successful vacation home ownership:

1. Determine If You Can Afford to Buy

It is important to have a firm grasp on the state of your personal finances before making an investment. Check your budgets, savings and credit ratings to decide if a real estate invest will affordably fit into your portfolio. Once you have settled on a home, make estimates which account for financing costs, maintenance expenses and property management fees.

2. Decide What Features You Want in a Vacation Home

There are many strategies to invest in a vacation property, so find the strategy that best fits your lifestyle. Think about the location and size, then put together a list of require amenities and wishes for your vacation property.

Are looking at long-term stability and a place to spend summer or winter vacations? Or would you prefer as little involvement as possible and a chance to earn a passive return through a property management company? And consider how much time or money you are willing to spend repairing and maintaining the property when you aren’t using it.

Check with local property management companies to determine typical vacancy rates in the area. Budget for setting aside money to cover the lack of income when the vacation home is not being used or rented.

3. Explore Your Financing

There are many different ways to purchase a vacation home. If you don’t have all the of funding in savings, you may want to leverage your portfolio to finance a mortgage or home equity line of credit – cash. Beware of fees, interest rates and terms for the new loan. And check with a trusted financial advisor for changes in your tax liability or deductions you can take to lower your annual expenses.

4. Review Your Maintenance and Repair Expenses

Many home buyers underestimate the future expenses for repairs, cleaning and maintenance. There are some of the extras cost you may want to be prepared for:

  • Water/sewer & Utilities
  • Garbage Service
  • Scheduled Maintenance & Housekeeping
  • Natural Disaster Preparedness and Repairs
  • Homeowners Association Fees
  • Capital Improvements
  • Vacancies

5. Build a Plan with an Exit Strategy

Even before you buy, have a plan in mind for how you plan to use and dispense of your vacation property. Don’t get caught underwater – estimate your cash flow, know your limits and decide who long you plan on using a vacation home. If you are looking for a quick turn around, be sure the markets are in your favor. And if you want to enjoy your hard earned leisure property for life, then consider how to pay it off slowly or pass it on to your benefactors.

Be a smart vacation home buyer. Give yourself the dream getaway home you always wanted and generate income with a viable investment property.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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