Similar to buying a primary residence, buying a vacation home focuses on more than just the financial aspects. Often the decision to purchase a second home is emotional, a choice that may be, in part, driven by the amenities of a specific area. If you are considering the purchase of a vacation home, here are six things to consider before you buy a second home.
- The best vacation destinations are within three hours of a major metropolitan area. The location consideration involves more than just your ability to access the property on weekends. A distance of more than three hours will not only seem prohibitive to you but to potential short-term guests (renters) as well.
- Because many vacation home owners do rent their property for some part of the year, the amenities a specific area offers must offer a broad number of possibilities. While some renters vacation with specific experiences in mind, the best returns on a short-time rental property will offer more than just a single season’s opportunity.
- Your vacation home purchase will involve a unique set of financial considerations. If you are paying cash, the concern will revolve around a sustainable value of the property over the long-term. If you decide to finance the property, you will need to recognize the lender requirements, which, like your primary residence, focuses primarily on your debt to income ratio. It must remain at or near the Fannie Mae/Freddie Mac standard of 36%.
- The methods of financing often depend on having, on hand, or your ability to borrow the down payment, sometimes using a home equity line of credit. Securing a second mortgage, which if you think about it, is actually a third mortgage (your primary plus the home equity line) may not be as difficult as you might think. Your lender will consider potential rental income (short- or long-term) as real income and this may help keep your debt-to-income requirement.
- If you plan on renting the property to short-term (vacation) guests, there may be tax benefits as well as IRS requirements to consider. Consult your tax professional.
- If you plan on renting the property to long-term tenants, the IRS may consider you a landlord. You may hire a property manager to make rental arrangements but in order to the tax benefits associated with a landlord status, you need to make some of the decisions (such as approving tenants or repairs). This may also change how the property fits into the “IRS definition” from vacation or second home to investment property. Again, consult your tax professional.
One of the best destinations that meet the above considerations is Sunriver. It is three hours away from a major metropolitan area – Portland, which makes this an easily accessible area for both you and potential guests. This area also has shown price stability over the long-term and is poised to continue to appreciate. Because of the beauty of Central Oregon and the wide variety of year round activities, rental income (short- or long-term) might off-set some costs associated with owning a vacation home.
Owning is different than visiting. Contacting an expert in the area, such as The Jones Group @ Sunriver Realty is essential for the decision making process.
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420-3725 | Mobile: 541-420-4018 | Mobile: 503-327-9611 | Fax: 541-593-5123
Licensed in Oregon