When you decide the time is right to purchase a vacation home, there are several factors you should consider before taking the plunge.
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Decide on the state.
Before you can decide on what city you want to make your home away from home, you first need to decide on the state! People who live in a sun-drenched state will perhaps want a winter vacation home, whereas people who live in the snowy North will want a sunny getaway. Then there are people who are quite happy with where they live but want a place in a more remote and scenic location.
It’s also wise to look into the tax situation in any state you are considering. Even if you’re only a part-time resident (a vacationer), that may not insulate you from the grasping fingers of the taxing authorities. Certain states, such as California, do charge tax on mortgage interest, for example. And if you open a local bank account, you need to consider the tax liability on that as well.
Discuss with your family — and with any friends who potentially might wish to purchase the vacation home jointly — exactly what the purpose of your home away from home is. Once you’ve established that and decided on the state, it is time to narrow down your search even further and decide on the city or town.
Pick a city or town.
Do you want to get away from the hustle and bustle of the big city to the relaxed atmosphere of a small town? Or do you wish to go to the big city when you are on vacation?
Whatever your circumstances, make a list of potential places in which you are interested. Thanks to the internet, it is easy to research every single location. Practically every municipality has a website that lists all the services the local government provides to its citizens and gives information about property taxes. (Local taxes will be in addition to any state taxes, as discussed above.)
Try to visit each town or city that seems promising. Stay in a hotel or a rental home near the neighborhood you are interested in for a week so you can get an idea of what it will be like to spend time there every month or every few months.
Check out the local culture — symphony, ballet, theaters, and museums. Check out the nightlife (or lack thereof.) If you want to have a vacation in peace and quiet, there are some neighborhoods in every town that you may want to avoid. If you’re a bicyclist or jogger, you’ll perhaps want your residence to be near bike or jogging paths.
If you or family members have health issues, make sure you check out the medical services available in the area. Give some thought to the location of a police station and fire department as well.
Research tax law.
Just how long do you intend to stay in your vacation home in the course of a year? If you live in it for more than six cumulative months in a year, some states — California for example — will consider you a resident and charge you taxes accordingly. It’s important that you talk to your tax advisor about residency issues.
Pinpoint an ideal home size & price point.
Many people are satisfied with a temporary residence that is much less expensive than their main home. The size of the home you purchase is an issue because of the issue of taxes. If your vacation home costs as much or more than your main home, once again, you could face tax penalties.
Use a real estate agent.
Although you can do quite a lot of research about locations on your own, having a real estate agent to help you find the ideal vacation home can be quite a time saver. A real estate agent can answer questions about the neighborhood, the surrounding city, and the taxes that you may have to pay.
Finding a good one might take a little effort, but they are worth their weight in gold. If you get an agent who proves to not be too helpful, simply dispense of his or her services and get another one.
Do your due diligence.
Treat the purchase of a vacation home just as you would that of your permanent residence. The home should be inspected and any problems fixed by the current owner before you make an offer. You may trust your real estate agent, but it’s best not to purchase a home sight unseen (even if you are sent photos or videos of the property)!
Consider hiring a caretaker.
If you purchase a home on a lake just a few hours from your main residence, you’ll probably delight in driving up (or down) there every weekend. As such, you can decorate the rooms differently than you would if you were to only visit there once a month or every couple of months.
Consider hiring a caretaker to mow the grass on a regular basis and check to see that all is well — for example, that there are no water or gas leaks. This is particularly important during stormy or winter seasons.
Make sure you relax!
There’s little point in having a vacation home if you don’t enjoy it! Yet many people fall into the trap of feeling like they “must” enjoy themselves, and end up getting stressed out instead by trying to do too much.
Earn income from your vacation home.
Depending on how often you intend to use your home away from home, consider renting it out to other vacationers, using websites such as Homeaway.com or Airbnb.com.
Of course, if you do this, there are yet more tax consequences you have to consider. You will also have to ensure that there are no local laws that prohibit this practice.
If this option sounds attractive to you, consider purchasing a home that would be an ideal for renting out. You could even purchase a bigger home than you strictly need if you are going to use rental payments to pay your own mortgage. Again, this requires careful planning and a discussion with your tax advisor.
Do you own a vacation home? What tips would you add to this list?
Let’s talk in the comments section!