Buying a vacation home is a dream for many, but it's important to understand the costs associated with owning one. Maintenance costs, rental income, and debt-to-income ratio are all factors to consider when deciding if a vacation home is right for you. Maintenance costs are often underestimated, and Hehman suggests setting aside 2% of the home's value each year for upkeep. Professionally managed rental properties can generate income, but the management company will usually take 20-50% of the rental income.
Short-term speculation in residential real estate is risky, so most buyers opt for a property they can enjoy for many years. Equity in your primary residence can be used to maximize the borrowing power of your vacation home. Depending on the lender, you may be able to credit up to 70-75% of projected fair rents when purchasing a vacation home. Your debt-to-income ratio will be a major factor in deciding how much you can afford.
Kelly explains that for investors who lack the means to acquire an idyllic leisure retreat, the path to owning a vacation home may begin with a more affordable rental property close to home.