With retirement finally in your grasp, it’s time to enter the next chapter of your life and enjoy the fruits of your hard labor. If amping up your vacation plans is on the short list, maybe adding a vacation home during your retirement years could become your dream come true — if handled correctly. Without the right approach, a vacation home venture can become a nightmare. Here are some tips to help you make a good decision.
Choosing the property. If you don’t have a particular location in mind, the experts at HGTV recommend visiting potential locations first. Think about the time of year you intend to stay in future travels and plan your visit accordingly. Decide if the property you are considering is accessible enough and if costs in reaching your destination are within your budget. Talk with local residents about the area and what it’s like in other seasons. You should also visit during different times of year. Look into area restaurants, find out what shopping is like, and investigate the school systems. Even if nobody in your family will be attending, schools can make or break future property sales.
Funding the purchase. A typical down payment on a vacation home is between 20 and 50 percent, and some people even pay for homes in full. According to the experts at Kiplinger, these transactions are often funded by home-equity credit lines. Lenders will expect you to stay within traditional debt-to-income ratios, though, so don’t expect a loan that will allow you to exceed a debt ratio higher than 36% of your income.
Interest rates. You should be able to get a mortgage for your second home at a first-home mortgage rate. You can deduct mortgage interest on your second home as long as the combined principal for your two residences totals under $1 million. According to some experts, there are ways to lower your insurance payment.
- Multiple quotes. Ask for quotes from several insurance providers, and investigate coverage. Balance costs and what you will need.
- You could potentially get a 10 percent discount by purchasing an endorsement on your primary residence insurance policy that will handle the second home.
- Other discounts. You might get a discount for installing a security system or by taking other measures to make sure your home is safe.
- Pay up front. Paying your premium in full rather than spreading it into payments can often qualify homeowners for a discount.
- Increase your deductible. Raising your deductible will lower your premium. Make sure you will be able to pay the deductible should the need arise.
Renting the property. Many people rent their vacation homes when they aren’t using them. If you plan to do this, realize there are tax rules that apply to renting property and you might be classified as a landlord. There are special tax considerations for landlords, so that may weigh in your benefit. Some experts recommend that you discuss your decision with an accountant or real estate agent familiar with these types of taxes.
Maintaining your vacation home. Once you have found the perfect property and made your purchase, you will need to establish who will maintain the home. According to HouseLogic, you have a few options.
- Property managers. Property management companies are expensive but these professional services relieve you of a tremendous burden. They can maintain the property inside and out, as well as oversee arranging rentals, advertising, checking guests in and out, and taking payments.
- Local caretakers. Hiring a local handyman or housekeeper is a much less expensive option. Your best bet in hiring a good one is to ask for recommendations with other property owners in the area. Check references and do background inquiries before hiring.
- Do it yourself. Maintaining the property yourself is the least expensive option but only if you live close enough to stay on top of things. If much travel and time is involved in reaching your destination, this may not be a viable option.
Home away from home. When buying a vacation home, it’s important to make good choices. Select your home carefully and review financial considerations. Decide if you will be renting the property and who will maintain it. By following these helpful tips, you can make your vacation home a dream come true.
Written by Jim Vogel, Image courtesy of Pixabay