With mortgage rates near historic lows and the continued appreciation of home values, the purchases of second homes or vacation homes have skyrocketed in the past few years. In 2014, vacation home sales boomed to a peak estimated 1.13 million, up from 717,000 in 2013, according to the National Association of Realtors.
While you’re relaxing at your spring break destination this year and find yourself entertaining the idea of purchasing a vacation home in the future, here are some considerations for choosing a good second home investment.
Image courtesy of Simon Howden at FreeDigitalPhotos.net
Assess Your Goals
According to the National Association of Realtors’ 2015 Investment and Vacation Home Buyers Survey, the biggest motivation for buyers to purchase a vacation home was personal use (33%), followed by future retirement (19%), price appreciation potential (13%), to rent to others (11%) and low mortgage rates (9%).
Would you use the home primarily for personal use or rental income? If you plan to use for both, will rental demand interfere with the timeframe you want to be in the home. Typically, getaway properties are only rented 17 weeks out of the year, so if maximizing rental income is your top goal, you may have to give up peak-season vacations for yourself.
Get a Local’s Perspective
If you’re serious about buying a vacation home (whether for personal or investment use), you’ll need to do some research while visiting. Ask locals questions referring to:
- Their likes and dislikes of the area
- How the area has changed
- What types of people are moving there
- What the area is like in the off-season
Envision a Renter’s Point of View
If you’ll be renting out the property, you’ll need to consider the amenities renters expect. What would you pay for a night in a certain location and what amenities would you expect to have at hand? For instance, if you’re scouting a coastal property, a renter is going to pay more for a property with beach and boardwalk access, as well as an ocean view.
Calculate Your Miscellaneous Expenses
Just like when you purchase a primary residence, your second/vacation home comes with costs that aren’t fixed. Remember that on top of your principal, interest, taxes and insurance on your second home, you’ll also have to budget for water, gas, electric, trash removal, maintenance, landscaping, etc.
You’ll also need to account for a property manager if you don’t plan on visiting often and a marketing strategy to fill the home if you plan to use it as a rental-income generator.
Look for Comparable Properties & the Local School District
Review other home sales nearby your potential purchase property to determine resale value trends. Also, pay attention to the school district the home is located within. Even if you don’t plan on sending your own kids to school there, a good school district greatly affects your property’s value.
Work with Someone Local
A real estate agent with experience and knowledge in your desired area can make all the difference in a second home purchase, especially if you’re buying a vacation-destination rental property.
Another plus would be to find an agent with a Resort and Second-Home Property Specialist (RSPS) Certification through the National Association of Realtors. These agents specialize in buying, selling and management of properties for investment, retirement or second homes in resort or vacation destinations.
For more information and advice on investing in a vacation or secondary home, download our free Vacation & Second Homes Guide.