The Mountains or the Beach: When is a Vacation Home a Good Investment Property
Things to Consider Before Buying a Second Home or Getaway Property
Despite the fluctuations in the real estate market during the early 2000s, real estate remains one of the most reliable investments one can make. But, if you’re thinking about buying a second home in the mountains or near the beach, there are some things you should consider before taking the plunge.
With all real estate, it’s about location, location, location, and this is never more important than when you’re buying a vacation home, especially if you plan on renting the home out when you’re not using it. Here, we discuss the things you need to keep in mind when looking for a second home, and how to know when buying that home is a good investment.
Where to Buy a Vacation Property and Why
One of the biggest mistakes vacation home buyers make is buying their homes in markets that are driven by second home buyers. While it might seem like the logical choice, the reality is that when the economy starts declining, the second home is one of the first expenses that families eliminate. They need to let go of their vacation homes to protect their primary homes.
As a result, these markets can be much more volatile and unreliable than markets where there is more of a balance between vacation homes and permanent residences. And, when neighbors start selling off their properties, it puts your investment at risk of losing some of its value.
Property Taxes and Maintenance Costs
For your second home to be a good investment, it needs to produce more money than you put into it. This means you should be looking to buy in an area with reasonably low property taxes. Keep in mind that when you buy the home, it is reassessed at the new purchase price. So, don’t base your numbers on last year’s property tax amount; factor in the tax based on the price you’re buying the home at.
You also don’t want to buy a home that requires constant maintenance. This type of home can quickly turn into a money pit that is absorbing more money than you’re making from it. When buying a vacation home at the beach or in the mountains, this becomes even more important.
For example, if the beach home you’re buying is in an area that is frequently a target of heavy storms, then your annual repair costs could be substantial. The same risk applies to a mountain home that’s located in a forested area that is heavy with sick or dead trees or one that is in an area that receives a lot of snowfall in the winter.
The IRS allows mortgage interest up to $1.1 million of mortgage debt to be deductible. This amount is for your primary and secondary homes combined. So, if your primary residence has a large enough mortgage, then you may not be able to take full advantage of the deduction on your second home.
Best and Worst Places to Buy a Vacation Home
Recently, Rented.com released a report titled, “The 150 Best Places To Buy A Vacation Rental Property In 2018.” According to their findings, the top five markets to buy a vacation home, in terms of ROI, this year are:
While mountain cabins and coastal homes are the usual suspects when one thinks about vacation homes, Rented.com’s report suggests that urban destinations are fast on the rise and better choices for those wanting to use their second homes as investments.
As for the worst places to invest in a second home, some of the cities may surprise you. According to Cheatsheet.com, these markets include:
- Aspen, Colorado
- Palo Alto, California
- Martha’s Vineyard, Massachusetts
- Naples, Florida
- Park City, Utah
At first glance, the above five cities might seem like the ideal places to buy a vacation home. But, the fact is, when their home prices are compared with their estimated rental incomes, the latter is far below what the home buyer will be paying annually for their homes. And, this is exactly what you don’t want to happen with an investment property.
Homes.com Can Help You Find the Right Second Home
No matter where you’re looking to buy your second home, Homes.com can help you achieve your dream. We have a massive online database of homes currently on the market, so all you have to do is enter the area you’re interested in, and we’ll provide you with the most up-to-date information for the homes for sale in that area. With Homes.com, finding your vacation home is easier than ever, so start searching today!