Vacation homes are a convenience many homeowners get to enjoy after building equity in their primary residences for some time.
When spending a week on the beaches of Florida or California, it's nice when your accommodations are a place you can call home. Why deal with hotel check-in times, fees and room service when you can sleep in your own house and make your own meals? If not for vacation, a second home can be beneficial if you travel to a certain location often for business or even if you want to spend some time in a warmer climate to avoid harsh winter weather.
Whatever the case, here are four tips for purchasing a vacation home:
1. Start with a test run
Sure, when you think about the ocean and sand of Daytona Beach, you'd like to have a house within walking distance of the water. However, this doesn't mean you'll be fond of all aspects of the location. You may not like the local cuisine, be far from needed amenities or clash with the community's culture.
Before purchasing a vacation home, spend some time in the area you're considering. To get a thorough assessment of your interests, you might want to rent a house first.
2. Find something you can rent out
Although your vacation home will be in a beautiful location, you'll only be there for a short percentage of the year. With this detail in mind, you need to shop with renters in mind when buying a vacation house.
While you and your spouse may only need one bedroom and bathroom, the family of five who is looking for a rental house for their two-week vacation needs more space. Think about which amenities will be sought by renters. This can include a washer, a dryer, additional bedrooms, additional bathrooms and proximity to amenities.
If you hadn't previously considered renting out your property, it is something to ponder. Like your primary residence, your vacation house will have expenses such as utilities, property taxes and homeowners insurance. However, you won't be enjoying the space while paying these bills. Rental income allows you to offset those expenses.
3. Get to know peak times
If renting makes sense, you need to determine the peak seasons for the location you want. Cities near ski resorts, for instance, will have more visitors during winter compared to summer. Having this information can help you plan your budget for the home's expenses during off-peak periods.
It will also give you an idea of when you'll be able to stay at your vacation property. There may be times when you need to decide between vacationing and earning rental income. In some cases, you'll have to adjust your own plans to accommodate your current tenant's lease.
If you plan carefully and far in advance, you won't have to worry about taking vacations only during the off season.
4. Understand the tax implications
There are various tax rules that come with owning a second home, and they get more complicated if the property serves as a rental property in addition to a vacation residence. The IRS has a list of guidelines regarding which deductions you can take on the second house, and many of these rules include specific periods of time in which you must be using the house for a certain purpose.
Generally, you are allowed to use your vacation home for two weeks every year if you want to qualify for the rental property tax breaks. Of course, getting the deduction means you have to file the appropriate tax documents as a rental property owner each year.
Regardless whether you use your vacation home for business, pleasure or both, don't forget to get a home inspection to ensure the property is in tip-top shape.