What to Consider When Buying a Vacation Home

Family unloading toys from SUV.

Your family still thinks about that great vacation from years ago.

Could buying a second home in that perfect spot give you more memory-making days with your children and grandchildren?

Before packing your belongings to take to the mountains, beach, or lake, there are several considerations to think through. With a purchase this large, it is important to understand how a vacation home will affect your short and long-term finances.

Budget for Double the Costs

Does your annual budget have enough flexibility for many items to double? Remember to account for twice the gas/electric, internet, water/sewer and other utility bills. Regular maintenance costs like lawn care and housekeeping can also double. Even if you perform most of the maintenance at your primary residence, it may be more convenient to pay for these services at the second home.

The vacation home may also be part of a homeowner’s association. While this can often provide some assurance that property values do not greatly diminish, it will also come with periodic dues.

Save for Emergencies at Both Homes

If you have an emergency fund set aside for plumbing, electrical or structural issues at your primary residence, consider doubling it for your second home. Depending on the location and age of the home, it may be more susceptible to damage from wind or snow. Even if you plan to rent the home, it is likely it will not be occupied as much as your primary residence. Therefore even a small issue like a water leak could go unnoticed for an extended period of time, causing significant damage and repairs.

To Rent or Not to Rent a Vacation Home

Renting a vacation home has many pros and cons to consider. If you decide to rent, you may choose to use a property management company to avoid the hassle of managing it yourself, though this comes with additional cost. You will also need to consider how often you plan to use the house and how these plans impact rental income. For instance, if you choose to rent only during the week and keep the home available for family weekend time, you will miss out on the predictable income that comes from weekend renters.

Renting the home can help offset purchase costs. And while vacation rentals are popular all year long, depending on location, you may find that during off-seasons you are not be able to rent the home as frequently as you would at peak times. If you are depending on rental income to offset monthly loan obligations, you will need to consider whether the property can provide enough cash flow over the course of an entire year.

Read more: How to Turn Your Home Into a Vacation Rental

If at all possible, determine whether or not you will list your property on a rental site before you purchase. This will help you budget for the home accordingly.

Check the Current Market

You have just returned from a trip, and are still dreaming about the real estate you saw, but is the market right for you to buy a second home there? Inflated home prices and a housing shortage are two signs that it may not be the right time to invest.

Research Tax Implications

Depending on your situation, you may be eligible to deduct mortgage interest and property taxes on your second home. If you do choose to rent the home, and you use it personally, additional rules may impact the deductibility of mortgage interest and real property taxes. We recommend you consult with a qualified tax advisor for information as to how the purchase of a second home will affect your particular situation.

Read more about tax deductions on a second home on the IRS’s FAQ page.

Work with a Specialized Lender

If the timing is right for you, securing a loan is the next step.

For this important purchase, you may want to work with a local lender who specializes in second homes. They can provide financing options that suit you.

An experienced lender who understands second home mortgages can provide information about down payment requirements and current interest rates.

Talk to a SouthState mortgage banker if you’re ready to take the next step.

About the Author: Renee Douglas has 25 plus years in the financial institutions industry including auditing privately held and publicly traded companies. As Director of Mortgage Risk and Business Controls in conjunction with the first line of defense, she oversees the operational risks associated with residential lending including audits, quality control, and compliance.

  • This content is general in nature and provided for informational use only. Content may be used in connection with the advertising and marketing of products and services offered by SouthState Bank, N.A. and its subsidiaries and affiliates. This is not to be considered legal, tax, accounting, financial or investment advice. You should seek individualized advice from personal financial, legal, tax and/or other professionals, as appropriate depending on the specific facts of your situation. We do not make any warranties as to the completeness or accuracy of this information and have no liability for your use of this information.

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