By Kathleen Black
It’s not unusual for people to take a vacation and feel like they have found paradise. Arriving home filled with the glamorous and romantic notion of owning their own vacation property can perhaps lead to choices made on impulse if all of the necessary factors are not adequately considered. As with buying a primary home, the decision to purchase of a vacation property should be made only after a study all of the relevant criteria as well as the additional considerations that are unique to the ownership of a 2nd home. Following a few basic guidelines will help to make informed decisions and to ensure that he property becomes a place of enjoyment for years to come.
How the property is to be used will help to identify the best location and housing type, which will then determine cost of purchase and maintenance. Will the property be used as a seasonal family getaway where friends and family might be frequent visitors? Will it ultimately become the primary residence or will it be retained as a rental property? Consideration may also be given to a combined situation of personal use and occasional rentals.
A single family, waterfront property might best fit the purpose of a summer seasonal getaway where a condo or resort property might be a better option for winter activities. A place for large family gatherings and frequent visitors will require adequate space, and lot size as well as appropriate communal areas. Distance and traveling time will be a factor depending on frequency of use and the possibility of regular visitors. If factoring in the possibility of occasional rentals, popularity of location and ease of access become more critical.
If the goal is to purchase an eventual retirement property, then access to daily amenities would be of significant importance. Manageable access to conveniences such as food and basic utilities, emergency and medical services, entertainment venues and local infrastructure should be primary considerations and can best be determined by visiting the area off season to assess availability. It is necessary, of course to consider only 4 season properties in this regard with full access to all utilities year round.
The purchase of a rental property should take popularity of location into consideration as well as a comparison of income over cost. A study of comparable properties in the area will determine average rental rates, length and frequency of occupations and the potential for repeat tenants. Excess wear and tear and the requirement for more frequent repairs may also be a contributing factor when renting in short term segments to multiple tenants.
Can I afford it is, of course, the first question, but there are costs to consider when buying a vacation property that do not impact the purchase of a primary dwelling. Mortgage, taxes and utilities are the initial calculations, but insurance may carry a higher cost if the property is located in an area affected by storms, floods or fires. Maintenance can also be an overlooked expense if the location determines more frequent repair. A beachfront property for example, will incur salt and weather damage requiring regular attention. A single-family home will have the usual maintenance costs to consider whereas a condo/resort property will have monthly fees to cover scheduled upkeep. Depending on the frequency of use it might be necessary to consider the need for a caretaker or management service to ensure protection of the property when vacant.
A second home will require furnishing and perhaps the additional purchase of equipment for recreational activities such as boating or skiing. Additional structures such as docks and boat houses will require regular maintenance. Remote locations may also require a budget for propane, septic tank maintenance and trash removal.
Appreciation is always a primary factor and, while vacation properties became more of a buyers’ market following the 2008 financial crisis, a return on investment may take some time to be realized. Purchasing for investment has different criteria than purchasing for enjoyment and should involve an objective analysis of trends and costs.
The Option to Rent
Before purchasing a vacation property for rental purposes, it is wise to study the overall appeal of the location and its popularity for renters. Comparisons with other rental properties and frequency of bookings will help to determine the feasibility. It is also critical to ensure that local laws and regulations allow short term rentals. Condos and resort properties will likely have rental agreements that may assume management and maintenance but will charge a percentage of the income.
Additional costs include advertising, cleaning and repairs and it may be necessary to engage a management service to handle these as well as the overall business plan for collection of rent, delivery of keys etc.
All of these costs will impact overall profit so it is important to chose a home that can be rented at the frequency required to cover expenses.
When considering the purchase of a property in another country a comprehensive risk assessment should be undertaken to consider all relevant financial, social and environmental factors. The decision to purchase in another country should never be made on a first visit and several subsequent visits may be required in order to satisfy your own requirements as well as those of the host country. Real estate is a local commodity, and a familiarity with local laws, culture, currency and politics should be developed as part of the decision-making process. You essentially become the foreigner in this situation and knowing the local ways will significantly ease the transition.
Several risk factors apply when buying property internationally and the question of affordability again becomes more complex as financing takes on the added considerations of foreign taxes, exchange rates and the potential for additional costs. Issues such as withholding tax and estate tax may arise with U.S. properties for example, and investment value is once again determined by the local rate of appreciation. While many countries are recovering from financial crisis, some are doing so at a slower rate, and a return on investment may be more of a long-term realization.
Other factors to consider in foreign countries would be:
- Sliding currency and changes in exchange rates
- Political changes and potential re-structuring of laws
- Ownership restrictions
- Development restrictions
- Historical restrictions regarding re-modeling
- Transportation, ie: quality and upkeep of local roads
- Availability of utilities, ie: does purchase guarantee a water connection?
- Rental regulations and long distance management
- Dispersal of estate
A vacation property can provide family leisure and recreation for many years, provide a regular respite from urban stress and potentially contribute an additional income. It can be your retirement destination or a legacy for your family. With the right guidance and careful selection, the benefits can be as bountiful as they are rewarding.
Kathleen has been instrumental in the development and execution of lead conversion departments, and the improved conversion of online leads while training mega teams at the top of our industry for production. Some of her past clients for training include: The Dan Plowman Team (full in-house recruit training, overall team training at various increments, business planning boot camps, listing system & buyer system training, presentation development, and overall assistance with content creation), St Jean Realty (Mastery Level Coaching Client: worked with the team to develop from less than 30 resale transactions to almost 200 in a 3 year period), Aj Hazzi (Mastery Level Coaching Client: Started as an individual agent: Team Structure, Team Development, Team Training, Team Member One on One Coaching Now producing 300 deals per year plus+). All of these teams run thriving lead conversion departments converting largely cold pay per click leads to massive profit and happy clientele.
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