…So why even think about vacation, or buying another home for that matter?
Hear us out.
First of all, who said a vacation home should just be for the summer? More on that later.
Second, with a highly active housing market, an economy on a tear, and rates still hovering around historic lows, now may be the perfect time to consider purchasing and investing in a vacation home. This decision, though, comes with a big personal and financial commitment—given the research and preparation required, and the likelihood of paying off two mortgages at the same time.
Nonetheless, buying a vacation home can be especially appealing and favorable when you throw in these personal and financial benefits, too.
1. Tap into rental income.
Owning a second home presents the opportunity of renting it out when you’re away. And if your second home is a vacation home? Well, so long as it’s the right property in a desirable town, turning it into a rental property will also give you a second source of income. And in some cases, you can deduct expenses of renting your vacation home. (As always, consult a tax professional regarding the deductibility of interest and charges.) Keep in mind, some local ordinances and homeowners associations (HOA) may have conditions, such as how much or how little a property can be used for renting.
2. Build (even more) home equity.
The housing market and home values fluctuate. Therefore, the decision to make a vacation home purchase shouldn’t be made with certainty that the property’s value will give you a huge payday in the future. However, if the town where you buy your home is vibrant, that may increase the likelihood of your property appreciating over time.
With that said, it’s critical to do a lot of research on housing factors like price trends, new-home construction, access to highways, restaurants, and other amenities to make sure you’re making a smart investment.
3. Capitalize on tax breaks.
For most homeowners, the home is their biggest tax break—and this can be true for a vacation home, too. If you use this property as a true second home and not as a rental property, then your mortgage interest and property taxes may be tax deductible. (Again, remember about consulting that tax professional!) On the flip side, there’s a special IRS rule that if you use a home as a residence and rent it for fewer than 15 days, you don’t report any of the rental income but also don’t deduct any expenses as rental.
4. Have a second “home base”.
Let’s forget the financial advantages for a second and focus on the warm and fuzzy stuff. The opportunity to build even more memories and have roots in another community shouldn’t be overlooked. This home can be a special place to host loved ones, create new traditions, or give you a peaceful haven when you want to get away. Your children will benefit from new experiences and friends, too—and as they age, your vacation home can serve as an heirloom and be passed down to future generations.
5. Prep for retirement.
Making a vacation home purchase with the intention of selling your current house and retiring in it can be a huge money saver for you. How? You’ll be reducing your mortgage debt before it even becomes your primary residence. And once you retire, the profit from your sold home can go toward the current mortgage balance of your vacation home.
This will also make your transition easier, given that you’re already familiar with the location, community, and most of all, the home. Plus, haven’t you heard? When it comes to retiring in America, the times they are a-changin’.
6. Simplify your getaways.
Whether your house is near the beach, on a lake, or in the country, there’s a good chance this property will become your family’s go-to vacation for any season. And why not? You’ll pocket what you would have spent for accommodations elsewhere. Plus, have we mentioned it’s all yours? You decide how long you want your visits to be, who will join, and what belongings you want to keep there.
Now, would this be the sole reason to make a vacation home purchase? Absolutely not, but it’s certainly a perk of owning one.
When it comes down to it, owning a second home is not for everyone. From your rationale and financial well-being to the local market and trends, there’s plenty to consider before making a decision.
But if having the keys to your own vacation home is something you’re committed to, then you might want to check out Your Cheat Sheet to Buying a Home When It’s Been a While.