A private getaway sounds idyllic. But vacation homeownership isn’t as simple as it might seem – or as affordable.
Taxes, insurance, property management fees and the possibility of HOA dues can turn your little slice of paradise into a serious budget-buster.
Here’s what to keep in mind before you buy.
1. Can you afford a mortgage?
Be honest: Can you really afford two mortgages?
Even if you can swing two monthly payments, keep in mind the opportunity cost of that extra mortgage. This is money that can’t work for you in other ways, such as in your retirement fund or child’s college plan.
Don’t lock yourself into a mortgage (especially a second mortgage) on a whim. Check out our mortgage calculator here to learn more.
2. Think about other costs
Unless you buy the home furnished, you’ll need to buy beds and other furniture plus linens, dishes, cookware and decor. If there's a pool or a hot tub on the property, factor in more money for extra water costs, chemicals, pool toys and towels.
Vacation properties also require maintenance. Unless you want to spend your entire weekend doing chores, you’ll have to hire someone to take care of maintenance.
Homeowners may also want to budget a second “emergency fund”, in case the home’s fridge dies or the electrical system needs an upgrade. Don’t ignore the cost of getting there, either. Always factor in transportation costs, including the price of gas or the average plane ticket cost.
If your vacation property is part of a homeowners association, then you’ll also be on the hook for monthly costs.
Soon after Gerri Detweiler and her husband bought a condominium in New Mexico, the HOA ordered two special assessments for repairs and infrastructure work. Next, the ski and golf resort (membership was mandatory) raised its fees.
“It really began to add up,” Detweiler said.
3. Watch out for insurance costs
A secondary residence is typically pricier to insure because it’s vacant some (or most) of the time, and thus more susceptible to vandals or thieves. A small problem, like leaky plumbing, can lead to major property damage because no one is there to stop it. Some insurers require coverage called vacant and unoccupied homeowners insurance.
You can help keep insurance costs down by putting up security cameras and alarms, or installing sensors that monitor temperature and humidity and notify you of any power loss. But the price of such modifications needs to be considered with the total purchase cost. You may also want to consider hiring a property management company to keep an eye on your place.
Deacon Hayes bought a mountain getaway in a town so small that no management companies operated there. Soon, he realized it was more than they could handle financially. After attempting to rent the property, Hayes put it back on the market.
“The expense of the property and the fact that I managed it myself made it a bad experience when all was said and done,” says Hayes, a personal finance writer based in Phoenix.
Here's everything you need to know about insurance for your second home.
4. How often will you actually use it?
How many days per year will you really spend there? Some vacation-home owners rent their properties at least some of the time to offset the cost of the mortgage. That job has become easier, thanks to sites like VRBO and Airbnb. If you do rent, you’ll need someone to clean the place between guests. If your property management company doesn’t offer that service, you’ll have to hire a local cleaner.
Hayes had tried to rent his mountain home out, with limited success.
“People mainly wanted to rent on holidays and weekends, which is when we wanted to go up,” he said.
Short-term rentals could also require additional insurance coverage known as rental property insurance. Ask your agent how much that coverage might add to the cost of second-home ownership.
Here's how to rent your home out in eight steps.
5. Plans may change
A weekend place sounds great right now, but consider the long term. Once you get everything packed, make the drive, spend parts of your days off doing chores or maintenance, and then try to get an early start on Sunday to beat the traffic, that weekend at the lake translates into a couple hours of actual relaxation.
This doesn’t mean you shouldn’t buy a vacation place. Instead, consider all the factors. If you can afford the costs, a weekend getaway is a great place to relax and recharge. Go into it with your eyes open, weigh all the factors and make the best choice for your household and your finances.
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