So you just returned from a trip to San Diego and find that you’re asking yourself the question: “Why should I continue paying rental fees when I could own a vacation home and rent it out?” Before you take the plunge, there are a few things to consider and if these five things apply to you, may indicate that you are indeed ready to purchase a vacation home of your own.
1. Can you afford it?
Let’s start with the basic question. You obviously never want to buy a home that will leave you drowning in debt. Keep in mind, the purchase price is only part of owning a vacation home. You’ll have to pay utility bills, maintenance fees and insurance premiums. And depending on where your home is located, you could also be responsible for paying homeowners association fees.
Check your bank account and ask yourself the following questions:
- Do you have emergency savings (at least three to six months’ worth of take-home pay)?
- Can you make a 20 percent down payment?
- If you have kids, have you already put aside enough money for a college fund?
- Can you still put away enough money for retirement?
- Have you paid off your existing home?
- Have you calculated the potential return on your investment?
- Does it fit in with your long-term investment strategy and financial goals?
Everyone’s situation is different. If you can answer yes to most of these questions, there’s a good chance that there’s room in your budget for a vacation home.
2. Have you done your research?
Loving the beach is great! But have you taken the time to truly understand what the surrounding area has to offer? You’ll want to make sure you visit during different parts of the year in order to get a feel for what it is like to live there during different seasons. Consider the short and long-term implications of buying a seasonal home as well as nearby amenities and services.
3. Do you know what’s happening in the market?
If you can keep up with what’s going on in the housing market, buying a vacation home might make sense. If you analyze changes in sales prices, you’ll be able to time your home purchase carefully, and you’ll be able to make the most appropriate decision based on seasonal demand, which drives home prices.
4. Do you have a plan to use it?
Do you view the home as an investment property that can serve as an additional source of income? Or perhaps you have decided that you’re going to find guests online through Airbnb? If you decide to rent it out, you’ll need to advertise it, you’ll need a payment method, you may need to hire someone to clean it, and so on.
5. Are you prepared to pay taxes?
Rental income must be included on both state and federal tax returns. If you are renting out your vacation home or even a portion of your vacation home (e.g., a bedroom), you might be considered an innkeeper. That means you might be expected to collect the same lodging taxes that hotels collect and make payments to your county, city and/or state. In Fort Lauderdale, Florida, for example, among tourists who pay for lodging, a 12 percent tax is due.
For many people, the decision to purchase a vacation home is serious. If you decide to take that leap of faith and you already have homeowners insurance, make sure you find out whether your current policy will cover the second home. Also, if you intend to rent out the property, consider purchasing rent loss insurance. It covers the loss of rental income following natural disasters and catastrophic incidents.
There’s a lot to consider when buying a home. If you’re ready to take the plunge, contact us today so we can get you headed in the right direction as well as offer our advice throughout the buying process. For all of your real estate needs, please contact us here at San Diego at Home. We can be reached today by calling 619.356.1919. We look forward to speaking with you!