Time for a Vacation Home?

Pros and Cons of a Second Home

Buying a second home is a big step and likely your second most valuable investment. Never rush into a second home purchase. You need to consider it over time. Determine how much use your vacation home will get and how it can fit into your finances.

Don’t forget to double everything. Buying a vacation home means that you will not only have two mortgages, but two property tax bills, water bills, fuel bills etc. Two homes mean more maintenance, including two plumbing and heating systems, septic systems, and roofs.  And if something breaks down in your second home, chances are you may not be there to see it. For some, this is just too stressful.

At the same time, owning a second home can be very rewarding. It can be the source of relaxation: a time to get closer to your family, a place to be a kid again, and a place to meet new friends. It can even be a place to retire.

Lastly, owning your own home is not like renting. You get to leave your stuff there to truly make it yours. You can make impromptu escapes, leaving the stress behind. And your children and grandchildren will feel more comfortable in a place they have learned to call home.

If you’re thinking about buying a vacation home, you’re not alone. The rate of second homeownership has jumped, as large numbers of Baby Boomers move into their prime wage-earning years. It is estimated that 6-10 percent of homes in the United States are second homes. That number is much higher in desirable vacation communities.

According to the U.S. Census Bureau, 32 percent of homes on Cape Cod are seasonal and prices have increased by more than 60 percent since 2000. Seasonal homes represent an even higher percentage on Cape May – 48 percent – and prices have increased by more than 70 percent since 2000, dwarfing the national average, which increased by about 32 percent.

The trend of second home ownership shows no signs of slowing. People in their 40s, 50s, 60s, and beyond are much more active than their parents.  They’re seeking outlets for fun, and with two wage-earners at home who have more disposable income than ever, the trend of second home ownership will continue.

If you’re considering a second home purchase, where do you start?

► Location. Consider your personal tastes, interests, and hobbies when you’re choosing a second home. For example, if you’re the type of person who thinks anything over a two-hour ride is long, you’ll have a fairly small geographic area in which to conduct your search.  If you plan to use your second home for a couple of vacations every year and long holiday weekends, then you can extend your search to a larger radius. Many second homeowners purchase properties in their favorite vacation spots because they already enjoy the area and want to spend more time there.

► How much are you willing to spend? Prices can vary greatly. Up and coming communities are less expensive than established vacation hotspots which have seen explosive appreciation. Prices in these popular areas range from a home on the beach worth $1 million to the same-sized home a mile down the road worth half that price. Check current mortgage rates to get an idea of what your monthly payment might be. Don’t shy from jumping in the car and spending weekends looking for different vacation homes.

► Get more specific on your location. Is your dream vacation home near the lake or on the lake? Do you want to water ski on that lake? Or do you seek a quieter spot to kayak or fish? Or is the lake in the mountains so you can combine winter and summer sports? Is it in an area that is a plane ride away, but one in which you hope to retire? This part of the process will take some time, but you can easily find the prices of second homes in your desired area without leaving your computer.

► Think about what it should look like. Is your dream vacation home a rustic cottage near the ocean? Or is it a condominium on a golf course? Perhaps it’s a ski chalet in the woods. You also need to determine how big it should be. Is it just for your immediate family or would you like to invite your extended family and friends?

► Find a great real estate agent.  This step is absolutely critical. A terrific real estate agent can not only find you a great home, but find one in a town with moderate property taxes and fun neighborhoods for your children.  They can help you with the finer
points of owning a second home – everything from obtaining beach stickers to trash removal to finding someone to watch your second home when you’re away. And if you rent out your second home, the agent can help you determine the rental price.

► Take your time. It’s tough to look for a second home, even with the Internet simplifying the process. A growing number of real estate agents make both interior and exterior photos available online to narrow your search without driving back and forth. Remember - rushing into a second home purchase can be a mistake. A trailer on the lake might look good today, but thinking about your long-term goals could lead you to a cottage down the street from a lake, just a mile from the ocean.

Look at a second home in the same way as your primary home. The most costly home repair projects are:

  • Kitchens
  • Bathrooms
  • Heating systems
  • Roofs

That doesn’t mean that you shouldn’t purchase a second home with an outdated kitchen. Just understand that if you can’t tolerate the current kitchen, it could cost you $10,000 to $40,000 to update. Unlike your primary home, you’ll have the additional challenge of managing a renovation project long distance with a quality contractor you can trust.

Buy a second home that suits your personality and needs. If you don’t like working on your primary residence or dealing with contractors, look for a home that needs little work. At the same time, buying the smallest second home in the best neighborhood you can afford means your investment may appreciate at a higher rate.

While rentals in your chosen area may be strong today, make sure you can afford the mortgage without any rental income when budgeting for your purchase. There are many facets of second home ownership that are out of your direct control – everything from a gasoline shortage to a hurricane.

Taking the time to choose wisely means monitoring events in your desired vacation community. Learn how long homes have been on the market to get an idea of how much room you have in negotiation. Learning the overall direction of housing values in your region also helps you make educated buying decisions.