The real estate market may still be an unpredictable place, but according to a CNN Money article by Sarah Max, lowered rates and prices on vacation properties may make it an ideal time to finally invest in a home away from home. Before committing to such a large investment, though, it’s important to consider a few important factors.
“Some vacation-home markets are on the cusp of recovery, which may not yet be reflected in sales prices,” according to Max. To find out if they are, consult with a realtor to determine the number of available homes now as compared to the number from six months ago. If the number has decreased, prices will probably be on the rise. It’s also important to consider that home prices in vacation hotspots rise and fall proportionately to those of its neighboring areas.
Not all vacation homes rent as often as others. You should request a detailed history of rental dates and property rates from your real estate professional. Some key factors that can affect those rates are the property’s proximity to tourist attractions, its style and decor, and its general architectural layout. Jon Gray, a HomeAway vice president, recommends to “focus on newly built properties or ones that have been recently remodeled.”
Many top-shelf bargain properties, such as foreclosed homes or condos in struggling developments, can be difficult to finance. Because of this, approximately 40% of vacation investors pay in cash. However, financial planner Barbara Steinmetz suggests opting for a loan if you can, since low rates may likely to result in a higher returns by investing your hard-earned cash elsewhere.
Also, as Max points out, “Keep in mind that lenders often require as much as 25% down on investment property, and you’ll pay up to one percentage point more in interest than you would on a loan for your primary home.” NOTE: You can call us toll-free at 800-634-8616 and we’ll be happy to answer any vacation home related financing questions you may have.
Like all big investments, it’s a numbers game. Some expenses you’ll have to consider are mortgages, property taxes, insurance, utilities, and maintenance, as well as the cost of obtaining your vacation property to begin with. Furthermore, although you can deduct expenses related to the property if you rent it for more than two weeks a year, you’ll still pay income tax on any profit you make.