Do you enjoy traveling? If you like to visit the same place most years, purchasing a holiday home in your ideal vacation destination can really pay off. Not only will you avoid paying for lodging while on your trips, but you'll also have a rental property that can allow you to recoup (and possibly exceed) your investment. If you are in the stage of trying to decide whether a home in your favorite travel destination makes sense, here are some considerations to think about.
You'll need to balance location and cost.
When vacationing, you might prefer to do so on a budget. This might entail staying several miles away from the white sand beaches or outside of a major city. The slight lack of convenience can make up for the cost, and this might be perfectly fine for you.
Remember, though, that if you plan on renting the property, you will not be able to attract a premium price if your home is located outside of the main tourist area in many cases. Instead of comparing homes within a particular city or zip code, you're going to need to have a real estate agent compare homes in the exact location where the home you are considering is located. You might pay half the price for a home located across the street from the beach than you would for a home directly on the sand; the rental fee that you will get will also be halved, so keep this in mind.
Maintenance costs can be higher than anticipated.
If you're not living in the home on a year-round schedule, you'll be less attuned to when maintenance is required. This could potentially add up to bigger expenses later. For example, a problem with the septic system might be relatively inexpensive to fix if it's discovered early, but left to fester, it could cause a high bill later.
One way to mitigate this issue is to work with a property manager or a condominium association. The company in charge of the property can make sure that maintenance is taken care of. When you buy a condo in your preferred location, usually much of the maintenance is included in the condo-owners' association fee. The fee generally includes outdoor maintenance, roof maintenance and, in some cases, plumbing and electrical problems that might crop up.
You'll need to look into tax and insurance implications.
Second-home owners need to pay additional taxes on their second properties. If you're collecting rental income, that will be taxed, too. This is not a reason to avoid buying a second home, but it is an important consideration to keep in mind when deciding if you can afford your home-away-from-home. Remember that you will also have additional deductions to write off when you have a second home.
In addition to tax obligations, you'll also need to pay higher insurance premiums. Much of this will be due to having either tenants in the home or a vacant home during part of the year. Your costs might also be higher than anticipated because a location in a large city or close to a river or ocean can raise your risk of a break-in or flooding, respectively. Again, insurance coverage on its own should not make or break your decision, but it's part of the overall financial obligation that you will have to think about.
Purchasing a home or condo in your desired travel location is a wonderful way to not only boost your financial security, but also provide you and your family with a relaxing or exciting place to stay while away from home. Talk to a tax adviser and a real estate agent or property manager to learn about the options and considerations that you should think about in your potential new community.
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