Are you considering buying a second home? You're not alone. According to the most recent U.S. Census data, there are 9.2 million second homes in the country - and that number continues to rise at a record rate. With interest rates low, and stocks still recovering, a vacation home is a wonderful investment vehicle, as well as a great lifestyle choice. Vacation homes can be found anywhere. A recent industry article said that second homes purchased last year were located in every state in the country, and included everything from small lakefront fishing cabins to ski resort condos.
How to Find Your Perfect Vacation Home
If you've always dreamed of owning a vacation home, here's how to start making that dream a reality:
Write down what you like to do
Most second-home buyers are primarily looking for a place to enjoy their recreational interests. Do you want to ski, sail, golf, enjoy the nightlife or relax in solitude? Your leisure activities will help direct you to the right vacation property for you.
Figure out how close you want your second home to be
A recent study of second-home purchases found that the median distance for vacation homes was 185 miles from the buyer's primary residence. However, the distance varied widely, with one-third located more than 500 miles away and one-third less than 100 miles away. Travel time is a personal preference, but a second home is more likely to be used on a regular basis if it's within a few hours' travel of your primary home.
Research the areas you're considering
You may love to ski, but can you afford a ski resort property? Does that secluded lake community crawl with people in the summer months when you plan to be there? The local Chamber of Commerce and the Internet are great sources of information on things like climate, amenities and cost of living.
Give it a test run
Once you've narrowed down your choices, go visit the areas during the time of year you plan to be there the most. Rent a place in a community you're considering. Talk to the locals. Find out what they like and don't like about the area. Many people consider retiring to their second home. Is this where you'd like to live all year 'round?
Financing a Second Home
Second-home loans are slightly different from those for primary residences. Since your finances are stretched thinner, mortgage lenders are tougher on second-home applications. Rates also traditionally run a bit higher. The good news is that with real estate booming, healthy competition among mortgage companies gives you lots of options. In addition, you'll get to deduct the mortgage interest, points and property taxes, with certain limitations.
Since interest rates are low, lenders may encourage you to take out a home-equity line of credit on your primary residence to fund all or part of your second-home purchase. Look carefully at the rates. Home-equity lines of credit can float a point or two higher than the prime rate, so you could end up paying more than if you had simply taken a mortgage for the entire amount. In addition, there is a relatively low cap on deductions for interest on a home-equity loan. It's important to talk with a tax professional when planning your financing to see what's best for your situation.
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Should You Rent Out Your Second Home?According to the National Association of Realtors®, only 15 percent of second-home owners purchase their property primarily as a source of rental income. However, some owners like the benefits of generating some additional income to offset the expenses of their second property. Know that it's difficult for most properties to generate enough rental income to pay the mortgage. However, renting your second home for a period of time can often bring in enough income to pay either the property taxes, or any upgrades it needs. You can rent out your second home, tax free, for 14 days or less in any calendar year. Once you rent the property for 15 days or more, it becomes an investment property and a complex set of rules apply, based on the type of housing you buy and the amount of time you rent it. A tax professional can help you decide whether renting makes sense and the best way to structure the process. If you do decide to rent out your second home, be sure and factor in the additional time and expenses. Unless you plan on doing all the work yourself, you will be paying outside fees for things like housecleaning and property/rental management services. Rental management companies usually charge a percentage and take care of all the details, from advertising and screening renters to coordinating cleaning and supervising emergency repairs. If you decide to manage the rental process yourself, be prepared to spend time attracting renters and maintaining the property. You'll find a number of online services that list properties for a small fee - just type "vacation rental by owner" into your favorite search engine. These services give you a good idea of the types of properties that are renting in your area and the rates they charge. Facts About Second Home OwnershipWhy people bought a second home
What they boughtVacation homes aren't necessarily expensive houses or condos in resort areas. More typically, they're smaller, less expensive beach houses, cottages and cabins. Of the vacation homes purchased in the past two years:
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