Are You Ready for a Vacation Home?

In the afterglow of a rejuvenating getaway, buying a vacation home can seem like an especially attractive idea. What could be better than having a place of your own near your favorite beach, mountain range or artsy small town? Before you make this big decision, though, make sure you’ve thought through all the implications of purchasing, owning and maintaining a second home.

Can you afford it?

This is the most important question to answer if you’re thinking about purchasing a vacation home. You’ll need to make sure that you can handle a second mortgage payment, but there are many other potential costs to weigh as well — as Geoff Williams notes in an article for U.S. News & World Report. When you purchase a vacation home, you’ll be on the hook for a double dose of interest charges, property taxes, home insurance payments, maintenance spending and other considerations. Depending on the state of the housing market, you could also be taking on heightened financial risks if you buy at the wrong time. Don’t take on these extra financial burdens until you’ve carefully analyzed all the pros and cons with the help of a financial professional.

Does it fit in with your other financial goals?

Even if you can afford a vacation home, make sure the purchase fits in with your other financial pursuits. Saving for retirement, contributing to your child’s college fund, paying off high-interest debt and working toward other long-term goals should come first. If buying a second home takes resources away from these important objectives, it’s probably not a good idea right now.

Can you rent it out?

If you’ll only be using your vacation home for a small portion of the year, you may be able rent it out and recoup some of your costs. If you do this, you’ll need to spend additional funds to secure property management and maintenance services for when you’re not there. You’ll also want to familiarize yourself with the rules regarding tax deductions for rental properties. If you plan on occupying your vacation home for more than a few weeks per year, you may not be eligible for certain rental property tax breaks.

Have you researched the location?

As you plan your vacation-home purchase, make sure you’ve done your due diligence on the location. Is it a place you can reach easily from your primary home? Otherwise, you may be able to travel there often and get your money’s worth from the purchase. You’ll also want to keep the location’s risk factors in mind. Areas vulnerable to flooding, hurricanes or wildfires will cost you far more in home insurance payments and peace of mind. Areas in economic decline could hurt your vacation home’s long-term value.

Will you retire there?

As cited by Business Insider, financial expert Jean Chatzky points out that many people buy second homes with an eye toward retirement. If this applies to you, is the home you’re considering in a spot that makes sense for your desired retirement lifestyle? If you want to spend your golden years hitting the slopes, a beachfront home probably isn’t the best fit for you. If you’re hoping to spend lots of time with your grandchildren, a remote, hard-to-access location won’t be ideal. Your home’s layout should also be appropriate for your changing mobility as you age — and located near the medical services you’re likely to need.

A vacation home can be a wonderful investment and a relaxing retreat — but only if you’re ready. Answering these questions will help you determine whether buying a second home is the right fit for your finances and life goals.

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