Home for the Holidays (& Summer Too): How to Buy a Vacation Home
04/12/2017 Kristin Demshki
A vacation home isn't just a summertime house — it's a memory-maker. That's according to Toby Babich, a board member of the Vacation Rental Management Association with years of experience in the second-home and vacation rental market.
Coastal beaches and mountains are traditionally popular holiday destinations, and make desirable second-home spots, according to Babich. "In many cases, a great vacation becomes a yearly family adventure, and that will lead to an ideal vacation home purchase," he says.
"Start with where your heart is, and purchase where you'll enjoy using your property," Babich says. "The ideal vacation home will have close proximity to an enjoyable feature such as a beach, lake, mountain, historical center or forest where a purchaser can enjoy nature, or something unique."
However, many don't consider the costs of home upkeep as an "absentee owner," he notes. "Homes require proactive and routine maintenance that must be carried out by competent contractors to ensure the home maintains its value," he says.
One solution? Hiring a nearby property manager, and renting the home out while it's vacant. Good managers offset upkeep costs with rental income; as a result, owners aren't as impacted by house-care bills.
A variety of vacation homes are on the market, and can look like houses, condos, townhomes or timeshare properties. Each offer unique challenges and benefits:
- Vacation-Home Association. A property is owned "drywall in," Babich says, and the owner pays dues to the community as part of a collective that maintains buildings through an owner and board. Property care costs are shared, plus some or all utilities. However, the owner doesn't directly control the overall property or care costs.
- Single-family home. In this situation, owners acquire the house and land; some prefer this option, as they're in total control. Yet, everyday operations, costs and maintenance fall on the homeowner, who "must budget for all the property expenses, including monthly expenses as well as large scale property upgrade projects," Babich says.
- Timeshare. "A timeshare community operates much like any common interest community, where the owner pays dues for utilities and building maintenance," he says. However, the owner doesn't truly own the home, but a deeded interest along with other owners. "This creates a scenario where ownership in a week does not come with rights to modify the condo, or enjoy it outside of the allotted time," Babich says.
Lenders typically consider this type of home (whether rented out or not) as a "second home" or an "investment property," he says. Lending requirements for purchasing a vacation home may differ, and your Pennymac loan officer will be able to offer you guidance.
As well, you may wish to speak with your tax advisor to discover any tax implications pre-purchase; tax considerations may impact how you'll use the property, whether as a second home or a rental.
The main ownership advantage? Memories. When using your new home for trips with friends and family, owners "can bank those trips away as lifetime memories that are invaluable," Babich says. "An investment in a vacation home is more than a financial investment, it is an investment in life experiences and happy memories."