Before making the decision to purchase a vacation home, it is important to consider if you can afford it. A vacation home is typically a luxury item, not an investment, and should be bought to add value to your life rather than your net worth. It is important to remember that there are costs associated with maintaining a home, such as roof work, exterior paint, and other long-term projects. Hehman suggests setting aside 2% of the home's value each year for maintenance.
If you have equity in your primary residence, you may be able to borrow against it to maximize the borrowing power of your vacation home. Whether you maintain the house yourself or hire someone else to do it, you will have to spend money on repairs and upkeep. Renting out your vacation home when you are not using it can help offset the costs of owning the property and generate income for you. The tax treatment of your vacation home depends on how much time is allocated to personal use versus rental use.
If you hire a real estate rental agent who is familiar with rental homes and the rental market in which your vacation home is located, you will have to pay a fee. The income tax treatment of your vacation home depends on how many days you rent it out and other factors. Kelly explains that for those who lack the means to acquire an idyllic leisure retreat, they may start with a more affordable rental property close to home. Personal tastes and the reason for buying a vacation home will determine the type of home and its location. Developers should not expect significant demand from the affluent population for their shrinking vacation homes. To insure the vacation home itself and get additional personal property coverage, consider purchasing a housing and fire policy.
Several of the vacation home developments mentioned in The Wall Street Journal were offshore. While vacation homes can gain value over time, the NAR reports that short-term speculation in residential real estate is a risky business, and most buyers decide on a property they will enjoy for many years to come.