Your working days are over and now you’re ready to put your feet up somewhere — like a vacation home. While images of beach-side barbecues and 80-degree Christmas holidays may sound like a dream come true, there are some serious measures to take into consideration before taking on the commitment of a second home.
Among some of the biggest mistakes retirees make are buying based on their current income, not insuring properly, underestimating costs, selecting the wrong payment option (approximately 62 percent turn to financing while 38 percent pay in cash, and not having an overall plan. This is not to say that you can’t pull it off (approximately 9.26 million other Americans are), but you’ve got to make sure you’re crossing all your T’s and dotting all your I’s so you don’t get yourself in over your head.
Do Your Research
Blindly choosing a location because you were captivated by photos in a magazine isn’t enough to finalize your destination. If you haven’t already, make sure you spend substantial time in the area first. Redfin recommends that you research the price listings for your desired locations to determine what you can afford. For example, the average cost for homes in Vista, California, is $549,000.
There are many things to consider such as whether or not you like the community; what type of recreational activities and modern-day conveniences are nearby (doctors and a hospital count, too); if the traffic is manageable, and if the weather conditions are to your liking.
Be Aware Of All Your Costs
Some people have a hard time wrapping their head around the fact that even though you’re not at your home, you’re still responsible for paying utilities, trash removal, landscaping, property taxes, insurance and regular repairs — you should set aside 1 to 3 percent of your home’s purchase price each year.
● Insurance: It’s important to be aware that you could be looking at higher insurance costs as lenders look at a sometimes empty house as a risk. Purchasing only limited personal property coverage puts you at risk for not being covered for all damage in the event of a fire or natural disaster. Increasing your liability coverage is a smart idea as your existing policy may not be enough to protect both of your homes. One way to save a bit of money is to get a secondary endorsement on your existing policy, but note it usually doesn’t provide as much coverage as a standalone policy.
● Taxes: Educate yourself on the various tax breaks that come with vacation home ownership. For example, you can rent out your home for 14 days without paying taxes on the rental income — but not more than that. However, rentals exceeding two weeks in a calendar year qualify for deductions such as mortgage interest property taxes, insurance, utilities, housekeeping, repairs and supplies.
Perhaps one of the biggest considerations to make is who will be taking care of your home when you’re not there. To offset your costs, it behooves you to purchase an abode that has rental potential as it can help you build equity and pay the property off faster. Check out other properties in the area that are doing the same thing, but also be sure to interview several different agents and vacation rental agencies before turning over your keys. You’ll have peace of mind knowing someone else is staying on top of bookings, administrative tasks, customer inquiries, greeting duties, marketing, property management, regular cleanings, taxes and insurance.
Photo Credit: Pixabay
Author: Jim McKinley