Do you dream of escaping to your own luxury chalet in the mountains? Or perhaps your ideal getaway is a beachfront bungalow with an ocean view? Whatever your idea of a golden retirement, buying a vacation home is considered a lifestyle investment, because beyond a property, it allows you to plan for the future.
As this is a significant investment, with its pros and cons, you need to carefully assess whether this expense fits into your long-term financial plans. Below, we will bring you tips to consider before purchasing a vacation home.
1. Assess Your Long-Term Goals
If your investment in a second home has an appreciation feature, you may want to consider renting, selling or retiring on the property.
Having clear goals is essential to good planning. Here, we always look forward to any investment, setting clear goals and timelines, and a second home is no exception.
It is good to know how long this property will be used during the year and the travel habits, as well as the appreciation over time.
2. Consider the Vacation Home Type
There are several types of vacation properties or second homes to consider, each with its own advantages and disadvantages.
Here are a few:
– Beachfront homes – Great views and beach access, but there can be red tape associated with any changes to the property.
– Mountain homes or ski apartments – Potential access to more square footage at a lower cost than other types of homes, but the elements of the climate can have a major impact on the property. These are good options to rent and make money during the winter months.
– Urban apartments: easy access to city amenities, but costs are higher in up. These are star properties on rental platforms, with very high demand and great opportunities to make them profitable year-round, or even part of them (e.g., a bedroom or a second floor of a duplex) at a higher price.
In short, the mantra that applies: location, location, location. For you and your family, in the short and long term.
3. Think About Expansions and Renovations
After the location, one of the biggest values is the possible extensions (creating additional living space that increases the value of the property when it is sold).
On the other hand, this has a high cost, and you have to calculate the difference between this acquired value and the investment for the improvement. The tax, as a rule, increases, because it is based on the current value. On the positive side of the scale, an annex part with independent equipment (kitchen and bathroom) can be a potential vacation rental or a one-time rental any a real estate agency, with additional appeal to potential interested parties.
Remodeling and work on the property, such as upgrading is a good strategy because existing homes that are available on the market at a more attractive price. A renovated house always has a better exit door, in case of resale or future rental.
4. Evaluate Your Finances
Last but not least, owning a vacation home is a purchase, in principle, with a perspective of extension in time, so it does not depend only on the current financial situation, but on the future.
To find out if these plans are compatible with the investment, there are a series of questions to ask yourself:
– How secure is your monthly income?
– Can this second home – or part of it, from a bedroom to an addition – be rented out at any time?
– Have you reached your mortgage debt limit?
– Will you need financing for the second home?
– Do you intend to keep this second home for at least five years?
– How much equity do you have?
Many of these questions are applicable to any investment, and having a favorable answer depends on having had a good investment fund strategy with a goal (in this case, the purchase of the home) in previous years.
In summary, there are countless factors to consider before investing in a vacation property, beyond the personal decision: everything must be weighed, especially from a financial point of view.
What do you think are the main considerations before buying a second home apart from those mentioned above? Let us know in the comments below.