Key Considerations When Buying A Summer Vacation Home
Buying a summer vacation home can be a great prospect, and not only when it comes to finding a way to enjoy one’s summer. Real estate prices – especially in areas that see high levels of summer vacation traffic – tend to appreciate over time, and this can make such a purchase an investment that is more than worthwhile. However, for most people, buying real estate is still a considerable undertaking and commitment. For this reason, make sure to consider all of the key factors of this decision before going forward.
Typically, the point of having a summer home is to provide the investor with a place to stay during the summer that is a significant distance from his or her primary residence. However, the problem with this is that it can make the investigation of properties difficult. Some investors may be tempted to rely solely on Internet-based videos and real estate sales sites to find and purchase their summer homes. This is a bad idea. Such depictions do not generally reveal everything about the property. For instance, if the house has termites, water damage, drainage problems, etc., this will not be evident through such mediums. One strategy you may use to investigate a property from afar is to use the Internet to find a house you think you may like and then hire an independent certified appraiser to investigate it. Appraisers can determine whether the asking price is fair and can see if there are any significant problems not mentioned by the agent or seller.
If one of your reasons for buying a summer vacation home is to hold it as an investment, you probably intend to sell it for a profit at some point in the future. In doing so, you should remember that the Internal Revenue Service offers a special tax break to homeowners who sell their homes. According to the IRS Web site, this comes in the form of a tax exclusion for the profit you make on the sale of your home, up to a profit of $250,000 (or $500,000 for people filing joint returns). However, there is a catch: it must be your primary residence. A summer home, by definition, is not a primary residence. To enjoy this exclusion, you must have lived in the home as a primary residence for at least two years out of the last five. Otherwise, the profit you make on the sale of your summer vacation home is taxable. In addition to income tax, remember that owning a home subjects you to whatever local property taxes apply to that area. (To learn more about the tax benefits of owning a home, see 6 Tax Deductions For Homeowners.)
Some people purchase second or third homes under the assumption that they will be able to pay the mortgage by renting it out to someone else. However, if you are buying a house to use in the summer, you will likely only want to rent it out during the non-summer months. There are three potential problems with this thought process. First, it is never a guarantee that you will be able to find a renter. Second, even if you do, there are possible problems that can come with having someone rent your home, such as damages they can cause to the property or an inability to pay the rent. These problems are compounded by the distance between you and your summer home. Third, if you are buying the home specifically for the purpose of using it in the summer months, you might have trouble finding renters for the time you are not living at the house. Many prospective renters might only want to rent during the time in which you intend to live there. Other renters might want to rent the property for the entire year. To make sure that you are financially capable of purchasing the property, you may want to assume that you will not be able to rent it out to anyone.
Squatters And Thieves
Another problem that purchasers of summer vacation homes face is the issue of squatters. If it becomes evident that you only stay in the house during the summer, someone may decide to move in while you are gone – and not pay rent. Those who do this may also damage the property, decreasing its value. Also, if you leave valuables in the home, thieves may be emboldened by the realization that you have left for the summer, stealing your valuables and possibly damaging the property in the process. In addition to these concerns, bear in mind that you may be financially liable to injuries sustained by people on your property – even if they are not supposed to be there. You may be able to hire a caretaker to keep watch on the property while you are gone, but this is an extra expense.
If the issues associated with purchasing a summer vacation home are a considerable detriment to you, you may consider becoming a renter yourself. Instead of undertaking the financial responsibility that comes with buying an extra house, perhaps you should just rent a home in a vacation area for a few weeks or months out of the year. This means that you will not be making an investment, but it requires much less effort and responsibility.
The bottom line is that if you are considering purchasing a summer vacation home, you need to do your homework ahead of time. This will ensure you are not blindsided by unexpected problems down the road.