How much should you spend on a vacation home?

Buyers often underestimate the cost of maintaining a home, especially when it comes to roof work, exterior paint, and other annoying long-term projects that we all like to avoid. Hehman says a good rule of thumb is to set aside about 2 percent of the home's value each year for maintenance.

How much should you spend on a vacation home?

Buyers often underestimate the cost of maintaining a home, especially when it comes to roof work, exterior paint, and other annoying long-term projects that we all like to avoid. Hehman says a good rule of thumb is to set aside about 2 percent of the home's value each year for maintenance. For professionally managed rental properties, he says, buyers should expect the management company to pocket between 20 and 50 percent of rental income. Using the example above, let's say you want to buy a vacation home with an income suite.

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. If you have equity accumulated in your primary residence, you may also be able to borrow against the value of your home to maximize the borrowing power of your vacation home. You've just returned from an incredible family vacation on the beach, and now you have the brilliant idea of buying a house by the sea to keep memories year after year. Offsetting the costs of owning a vacation home through rental income is a great way to stretch your money even further and increase your borrowing capacity.

Owning a vacation home is a lifelong dream for many, and with a little creative financial planning, you can be more attainable than you think. Like your main home, a vacation home is likely to make a big impact when April 15 arrives. Many people who enjoy traveling to the same place year after year will consider buying a vacation home. Recent figures from the National Association of Realtors show an upward trend in the number of second homes purchased for investment purposes, with rental properties outnumbering holiday homes by a large margin.

Depending on the lender, you may be able to credit up to 70% to 75% of projected fair rents in the market (in Canada and the U.S. Department of State, respectively) determined with an appraisal when purchasing a vacation home. With the help of a quality real estate agent, you can decide if buying a vacation home is right for you. This vacation rental not only generates income, but it also provides free accommodation during your well-deserved vacation.

Your debt-to-income ratio will be a major factor in deciding how much a vacation home can afford. Kelly explains that for investors who currently lack the means to acquire an idyllic leisure retreat, the path to owning a vacation home may begin with a more affordable, utilitarian rental property close to home.

Shawna Fluellen
Shawna Fluellen

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