Are you considering buying a vacation home? Read this first!
Seven truths about vacation home ownership
According to a story in the Wall Street Journal, although the economy is firming up, interest rates are still relatively low and investment accounts are brimming, there are many things to consider before buying a second vacation home. A recent survey by the National Association of Realtors shows how the prices of vacation properties are back where they were in 2006 before the financial crisis. The median sales price of a vacation home rose by 4.2% in 2016 to $200,000, following a 28% gain as the housing recovery gathered steam in 2015.
If you are considering buying vacation property, consider these seven truths:
- The Right Reason
To ensure an excellent experience, the Association of Realtors says buy a vacation home for the right reason. Most people purchase a vacation home to…vacation! And experts say that’s the best reason to move forward. Simply put, rental income is unpredictable so investors say you should view it as the icing on the cake. In other words, don’t rely on it.
Pick a location that’s good for business (like Santa Barbara). Renter demands can vary dramatically even within a given community so do your research.
- Costs and profits
Be realistic about the costs and profits. That’s excellent advice for those considering purchasing a rental unit as well as those buying a property with the intent to sell. Consider this: from the end of 2007 through 2012, primary-home prices dropped by 14.8%, vacation properties by 23%. Sales of vacation homes dropped in 2016 to $721,000, off 21.6% from the $920,000 in 2015.
- Get the facts
Educate yourself with the local rules including ordinances and homeowner’s association policies. There are government regulations that might limit an owner’s flexibility so make sure to check those too.
- Plan for success
Make a plan for vetting and negotiating with renters. Even if you use a service, make sure you understand the costs before you sign a contract.
- Avoid tax traps
Watch out for tax traps when considering buying a second home. Federal tax rules offer deductions for mortgage interest, property tax, insurance premiums and many other expenses on second homes. But the rules are complex, and the biggest breaks generally go to owners who use the property no more than 14 days a year themselves.
- Be prepared for anything
Be ready for tenant demands because renters expect perfection. Also, expect the unexpected when it comes to renters.
If you’re considering buying a vacation home in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities, or are considering selling your home here, I’m here to help. Please call me at 805.886.9378 or email me at Cristal@montecito-estate.com. Together we’ll find the perfect place where your vacation dreams can come true!