Just like your main home, a vacation home will hopefully and probably increase in value. Especially in popular areas near beaches or mountains. Buying a vacation home allows you to diversify your income, accumulate wealth, plan your retirement and, of course, take a vacation at no additional cost to you. Some investors weigh a benefit more than others, but once you're clear about why you want to buy a vacation home, you can focus your search and match your investment with your priorities.
Many vacation home investors decide they want to buy a second property after returning from a great vacation. Rather than acting on those emotions, buyers should do their due diligence to ensure they fully understand what they are getting into before making such a major investment. In general, a “good capitalization rate” (or a good ROI) really varies depending on the vacation destination you're shopping at based on factors such as demand, home prices, and property types. Even if you rent your vacation home for part of the year (and it's not your main home), it's still a personal residence in the eyes of the IRS if you use it yourself often enough.
Retirement can take a few years (or decades), but buying a vacation home now opens up exciting options for you. In short, for people who want to constantly return to the same place, buying a vacation home is a smart bet. As with buying a personal residence, vacation home buyers can check websites such as Zillow, RedFin, Realtor, and MLS to research different markets and consider pricing. If you plan to rent your vacation home, another advantage is the possibility of earning more income, but you'll want to consider the downsides, such as marketing your home to guests (which can be a lot of work) and navigating complex local short-term rental regulations.
The location of your vacation home will also dictate other issues, such as property taxes and rental policies. Lisa Ann Schreier, who calls herself the Time Share Crusader, reminds future buyers that there is a big difference between buying a vacation home and a timeshare. Greer points out that choosing to work with full-service managers like Vacasa can ease the burden of maintaining a vacation home from afar, especially if it's a mountain property or cabin that may need additional care during the winter. As you approach retirement, the amount you owe on your vacation home mortgage will be lower or paid in full.
One of the first factors you'll want to think about before buying your vacation home is its location, including how far you'll be from your primary residence. Like your main home, a vacation home is likely to make a big impact when April 15 arrives. 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. After all, if you want to come to your vacation home to relax, paying guests will likely want to do it too, especially if you buy a home that is pleasing to the eye and that is pet friendly.