Your vacation home should bring joy to your life, not leave you in financial hardship. Before you purchase a vacation home, it's important to take some time to plan and budget to ensure you don't spend more than you can afford -- or end up with a house you struggle to sell later. Here are three specific tips to ensure your vacation home purchase is made in a financially wise manner.
Buy less than you can afford.
Figure out how much money you can dedicate to mortgage payments on a vacation home. Then, look for homes for which the payments will only total about 3/4 of that amount. This way, if some unexpected expenses come up -- like surprise medical bills or an emergency with the family pet -- you'll have a bit more wiggle room in your budget and you won't be forced to sell your vacation home just to make ends meet.
Make sure you can rent it out.
Most people compensate for part of the expense of owning a vacation home by renting it out when they're not living in it. If you're planning on generating rental income from your vacation home, make sure this is a viable option before you purchase. Look into rental restrictions in the area you'll be buying in. Some municipalities will only let you rent on a month-by-month or longer-term basis, while others may not allow you to use 3rd party listing services to rent out your home. Get a good idea of how others in the area rent out their vacation homes, and make sure those strategies are feasible for you before you buy so you're not left without rental income.
Factor in the taxes.
One mistake people often make when buying vacation homes is forgetting to include the taxes when they calculate how much they can afford to buy and how much they'll bring in from rent. Property taxes in vacation hotspots are often higher, so make sure you get an accurate estimate of property taxes on a home before assuming you can afford the monthly payment. You may have to pay even more property tax if you plan on renting the place out rather than living in it full time. When you're calculating how much you'll bring in from rent, remember that renting out property is considered a business endeavor; you'll have to pay income taxes on that rent.
Before purchasing any vacation home, it is wise to consult with a real estate agent and a financial counselor to ensure this is the right financial choice for you. Contact a business, such as Summit Real Estate for more information.