Ask yourself these 3 questions before buying a vacation home
Dreaming of your own piece of vacation paradise? You’re not alone. Vacation home sales were up 57.4 percent from 2013 to 2014, according to the National Association of Realtors—and most of the vacation homes purchased were within driving distance of the buyers’ first homes. If you’re thinking of dipping a toe in the waters of second home ownership, there are several things to consider before you commit:
Where will you buy? Will it be a place that’s off the beaten path, or a popular vacation spot where it’s easier to rent? Location will have an effect on pricing. Hot holiday spots tend to have expensive housing, so you’ll have to do your research ahead of time and use your head as well as your heart.
What can you afford? Will you need to rent the home to pay for the upkeep? In addition to the price of the home, you’ll need to consider what utilities and maintenance will cost. Will you need to hire someone to keep an eye on the property when you’re not there? You’ll also need to get insurance for the property—homeowners, and landlord insurance if you rent it. And, if the home is in a flood plain, you’ll have to purchase flood insurance, too.
Will there be tax implications? Whether or not you rent, and how much time you spend in the home, will determine the deduction you can claim and the taxes you’ll pay on any rent earned. If you are thinking that this will be more of a rental property than your personal home-away-from-home, plan on paying taxes on that income. On the upside, you can also declare tax deductions on the rental property for any home maintenance, upkeep, and the like. Either way, you can deduct mortgage interest and property taxes just as you can for your primary residence. (See IRS Tax Topic 415 .) If you are unsure, contacting your tax advisor to see what the best options are for you is a great place to start!
Equal Housing Lender