The pandemic has changed a lot of things, including the national real estate market. Between July and September 2020, vacation home sales actually outperformed existing home sales, a 44% gain from the same time the previous year. Since mortgage rates are still relatively low, Americans will likely buy up even more vacation homes in the coming months and years.
Perhaps you’re looking to snag one yourself. How do you know which vacation destination and home are right for you? Use the tips below to choose the best location and get the most bang for your buck.
1. Think About the Down Payment
Many home buyers rely on loans backed by the Federal Housing Association because they require a minimum 3.5% down payment. Even borrowers with credit scores down to 580 or lower can get homes with low down payments. However, second home buyers are often subject to a minimum of 20% to 35%. Lenders have raised these percentages in recent years, which means they could go up again.
Factor the down payment into the initial cost of each potential property and remember that vacation home loans come with slightly higher interest rates. Lenders’ perceived risk determines the pricing and most feel that borrowers are more likely to default on a secondary residence. Make sure you’re ready for the downpayment and interest rates before seriously beginning your search.
2. Consider Investment Potential
How much time will you actually spend at your vacation home? When will you visit and for how long? If you go during the off-season, you could potentially rent out the home during tourist season and turn a real profit. Even listing it on Airbnb or Verbo for a few months a year could help you earn passive income and pay off the house.
Factor investment potential into your plans when choosing a location for your vacation home. Ideally, it’ll maintain a steady flow of tourists or have some unique draw that lures in guests. For instance, if the home has waterfront views or sits beside a local attraction, you should have little trouble booking a steady stream of visitors.
3. Stay Before You Buy
Grab your travel pillows and take a road trip to see the place and stay in the area. Is the spot as close to the beach as you thought or do traffic and low-speed limits lengthen the commute? Perhaps the neighborhood is more crowded than you’d like or tourist season is too busy. Either way, you won’t know unless you go.
Remember to visit before you make an offer or get too emotionally involved with a potential home. That way you can make more logical, measured decisions when you stay there or attend a showing.
4. Look for Evidence of Water-Proofing
Some of the best vacation homes reside on lakeshores, beaches and riversides. These waterfront properties have a strong potential for appreciation, so they can be a great investment. However, it’s important to consider local weather and how water-proof the home is before making a down payment.
Is the area prone to hurricanes, tsunamis, heavy rain or other kinds of extreme weather? If the home sits lower on the water table or too close to the water, it’s likelier to flood. Most home insurance companies refuse to cover flooding, so you must protect the property yourself. Look for evidence of water- and weather-proofing when you take a tour. If the previous owners did little to defend the home, you’ll be stuck paying for additions, which can get pretty expensive.
5. Factor in Maintenance Costs
Consider for a moment how much it costs to maintain and secure your current home. Can you afford to do the same — at twice the price — for a vacation home? If the property will sit vacant most of the year, you might want to add security cameras and hire a maintenance crew to perform yard work.
Experts recommend saving 1% to 4% of your home’s total value for repairs and maintenance each year. Depending on the cost of your vacation home, that dollar amount might be rather high. Make sure you can afford it before signing any paperwork or you’ll be in for a nasty surprise when something does need cleaning or fixing.
6. Remember Your Long-Term Goals
A vacation home is desirable for a lot of reasons, but it’s important to remember your why when choosing your dream property. Why do you want to purchase a second home in the first place? Are you planning to retire there or rent it out? Many empty nesters purchase second homes with no intention of purchasing another. Then, once they retire, they find they want a new property for a new life stage.
That’s why you must keep your long-term goals in mind when choosing where and when to buy. Do you want to live near your children and grandchildren? Do you want a home you can retire in or can you handle another move? Aligning your plans with personal values will prevent immediate gratification from distracting you from your reaching your dreams.
Planning Ahead for Your Next Vacation Home
Vacation homes are expensive, regardless of where or when you buy one. That’s why it’s important to start planning and saving now. Then, when a glitzy lakeside property catches your eye, you’ll have the funds and confidence to snatch it up before anyone else.