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How To Buy A Vacation Home

Owning Offers More Consistency Than Hotels And More Flexibility Than Timeshares

How to Buy a Vacation Home with a Detailed Plan is CRUCIAL

Hotels are consistently inconsistent. They shut down, get new owners, and book up. Furthermore, their prices are in constant flux, making them cheap buys for a weekend away in one season and extremely cost-prohibitive in another. Also, the rules around additional guests and pets can make it hard to feel completely at home. And we’ve all heard timeshare horror stories.

Lisa Ann Schreier, who calls herself the Time Share Crusader, reminds future buyers that there is a big difference between buying a vacation home and a timeshare. “First, a timeshare is never an investment, and purchasers can expect little or no resale value once it’s paid off,” says Schreier. “If there’s still an outstanding loan on the timeshare, there’s almost zero chance of being able to sell it.”

Timeshares are typically purchased for a week or two per year, and sometimes there’s the vague promise of exchanging it for access to another destination. In short, for people who want to constantly return to the same place, buying a vacation home is a smart bet.

So What Does It Mean To Buy Property With No Money Down

Traditional lenders, such as credit unions or banks, require a down payment when you take investment loans to purchase income property. So how much money do you need? Well, the down payment is usually 20% of the buying price. For example, if you are purchasing a home worth $500,000, the down payment will be $100,000. It would take the average property investor a long time to raise such an amount.

When we talk of buying a vacation home with âno money downâ, it means that the real estate investor is putting very little or none of their own cash into the investment upfront. Buying an Airbnb property with no money down will greatly enhance your chances of making a higher return on investment.

Related: How to Invest in Real Estate with No Money: A Beginners Guide

Soak Up The Sun At Your New Vacation Property This Summer

If you’re considering diving into the vacation-property market, there are a few things to consider. To help you navigate this decision, CIBC mortgage advisor Jacson Francois Opens in a new window. shares his tips from over 12 years of experience in the industry. Having also recently bought a vacation property himself, Jacson has plenty of tips to share with his clients.

Recommended Reading: Best Way To Find A Vacation Rental

Is Owning A Vacation Rental A Good Investment

When investors follow the appropriate steps to buying a vacation rental property, they are more than likely to reap the many benefits this investment offers. The biggest payoff vacation rentals have is increased cash flow. Vacation rental platforms are a great way to generate income from a short-term lease, and if your property is in high demand, you will see even greater profits.

The tax benefits associated with vacation rentals are also available to take advantage of. Your vacation home is considered a business if it is rented out for at least 2 weeks per year or more for tax purposes. This means that the rentals income will be taxed, but you can also write off many of your rental propertys expenses. You can deduct many items from your taxes, including utility costs, property management fees, occupancy taxes, mortgage interest, and more.

Not only can you generate income by leasing out your rental property, but also you have the benefit of vacationing there yourself. If you ever decide to take a getaway, your vacation rental can be made available for your own personal use. You can even hold on to your vacation home to use as a future retirement home.

Know The Nation’s Laws

Tips when buying a vacation home in Thailand  REAL Phuket

You dont have to star in a spy movie to have multiple passports: Buy a house in Malta, Cyprus, Grenada, or several other countries with special investment programs, and you could be eligible for a second citizenship.

But on the flip side, many countries place restrictions on foreign ownership. Non-citizens generally arent allowed to own land outright in Thailand. Costa Rica has restrictions on its coastline. In Mexico, the constitution forbids foreigners from directly owning property in a restricted zone that extends 50 kilometers inland from the ocean and 100 kilometers from any national border.

That doesnt mean that American owners including the Wells cant own an oceanfront house. But it does have to be held in a bank trust, which increases the transaction cost. Setting up a trust can add a couple thousand dollars to the expense of a home, with management fees running about $500 a year, said David Connell, managing partner of Connell & Associates, a Mexican law firm.

Its a fairly straightforward process, he said. But it does add a little more work.

Some countries have laws specific to agrarian property which can cause problems even if youre not looking to buy a farm. The complications with the Wellses home stem from the fact that the property was part of an ejido, a plot of communally owned land once used for agriculture.

Two years to a long time, he said.

Ejidos arent limited to remote, rural areas.

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Determining Whether You Can Afford It

First, you need to consider whether buying a vacation home is a realistic or responsible financial goal in your current position. Even if youre able to rent it out, owning a second home comes with a lot of expenses, and rental income might not completely cover them. You need to not only consider whether you can afford the monthly mortgage payment, but also if youre prepared to take a loss on the property if you decide to rent it out but struggle to generate significant revenue.

It may be a good idea to discuss your plans with a financial advisor who has experience in this area before making any serious commitments.

Location Of Vacation Home

You must know that the single determining factor presiding over whether or not your investment is a success or a failure depends on the housing market you invested in.

Location is the single factor that can make or break your real estate investing objective as an investor.

The role location plays in real estate investing cannot be understated. Location is a highly significant part of your real estate investment strategy as it determines the sale price of the property, the kind of vacation home mortgage you can get, rental type property, occupancy rate, the Airbnb return on investment, the cash flow, the recurring rental expenses, the return on investment, etc.

When investing in short-term rentals like a vacation home, location plays an even more significant role as it dictates the Airbnb laws and rules you must abide by.

Many US cities were prime locations for Airbnb investments some years ago and are now essentially illegal for investing in rental properties for the purpose of rentals. These locations include Airbnb Boston, Airbnb Chicago, Airbnb New York, and Airbnb Los Angeles.

If youre a new investor and youre unsure of how to start your search for the best vacation investment property locations in 2022, stick around and make your decision from the sites listed below.

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Finding A Vacation Home To Buy

No matter which route you choose, your first step should be to search for homes for sale on Redfin, and then save your search so you get instant email updates when homes hit the market in that area. Doing this will help you get a sense of how much homes are selling for, and which ones will move quickly. You should then plan to visit the area and try to see as many homes in-person as you can while youre there. A Redfin Agent can take you on as many home tours as you want, and if you find one you like, they can help you prepare and submit an offer while youre still in town.

Where To Buy Your Cabin Or Cottage

What You Need to Know Before You Buy a Vacation Home | Real Estate

Are you looking for a storybook cottage in the woods, a stone cottage on the Maine coast or just a country cottage getaway near your home in Cleveland?

Where you live often influences where you travel to get away. Before settling on the location of your vacation home, heres what you should consider:

  • How it feels: You should visit locations in the area you would like to purchase your cottage house to find one thats perfect for you.
  • The weather: If you plan to stay at the cottage for multiple seasons, you should visit at various times of the year to determine if the location is right for you.
  • Amenities: Consider amenities that are important to you. Do you want a waterfront property with dock access, or can you save a little money by living where the lake is a few minutes down the road?
  • Hazards and taxes: If youre near the ocean, can you handle the extra homeowners insurance costs that might come with being in a hurricane zone? Are property taxes cheaper here or in the next town over?

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S For Investing In Vacation Rentals

Before you even look at buying a vacation rental property, there are a few things you need to figure out. Thats because learning how to buy a vacation rental requires a special set of strategies.

Fortunately, its not as difficult to start investing in vacation rental properties as many would assume. In fact, I have broken down the entire process into five simple steps that anyone with a good work ethic and a mind for due diligence can grasp. Ringing true for almost any type of real estate investment, the very first step is doing your homework before you take any actions.

Leveraging Your First Home Equity To Buy A Second Home

If you have equity built in your existing home, along with a steady income, you could use it as a down payment for the purchase of a second home.

First, what does home equity really mean? Simply put, home equity is equal to the appraised value of your home minus your remaining mortgage balance.

Appraised home value Remaining Mortgage Balance = Home equity

Naturally, if youre a new homeowner you probably wont have much home equity built up yet, but that will change in time. As you pay down your mortgage, your home equity increases. And if the value of your home increases over time, as is often the case for those whove owned their property for many years, your home equity will also increase.

Even if youve been a homeowner for quite a while, you might not have a lot of savings in your account. However, having seen your property value increase, you could still leverage that home equity for a down payment on an investment property.

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Should You Buy A Vacation Home

You might be thinking, Why wouldnt I want a vacation home? Having a vacation home can be a great, fulfilling investment. However, like anything else, you need to take some time to go over your financial situation and think about whether investing in a second home makes sense for you.

Lets discuss some of the benefits and drawbacks of buying vacation property.

Vacation Home Loan Requirements

3 Steps to Buying a Vacation Home With Friends
  • Debt-to-income ratio For a primary residence, borrowers can sometimes finance with a 50 percent debt-to-income ratio, or DTI. For a vacation property, think closer to 43 percent, or maybe a touch higher.
  • With an FHA loan, you can buy a primary residence if your credit score is 500 and you have a 10 percent down payment. For a vacation property, for which FHA loans arent available, figure that youll need a credit score of at least 640.
  • Down payment Generally, you can buy a primary residence with as little as 3 percent down. With a vacation home, youll need at least 10 percent.
  • Reserves In some cases, you can buy a primary residence with little or no reserves. For a vacation home, youll likely need reserves equal to two to six monthly mortgage payments.

Be sure to check vacation home mortgage requirements with different lenders the financial stress created by the pandemic has caused many lenders to tighten their approval requirements.

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Vacation Homes: A Niche Way For Renters To Break Into The Housing Market

If youve been wondering how youll ever afford a house in your city, buying a vacation home may be the right move. It can help you build wealth, offer you an added income stream, and give you your own personal vacation getaway when you need it.

Are you considering buying a vacation home? Then shop around and see what mortgage rates you qualify for today.

Opt For An Updated Home

Photo via

While buying a vacation property thats newly renovated or has updated appliances might cost you a little extra upfront, it will save you money in the long run. You wont have to worry about washer and dryers breaking as easily or walls needing a fresh coat of paint. An upgraded home is also a great thing to keep in mind if you plan to rent out your vacation home when youre not using it!

Photo via

With certain types of vacation homes come more responsibilities. Second homes on an acreage, a beach, or even in the mountains will have property that will need upkeep, such as pulling weeds, mowing the lawn, cleaning out the gutters, or fixing roof shingles. So if youre someone who doesnt want to do the extra labor, consider a place where maintenance is minimal or included in your HOA fees.

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Look For Nearby Self Storage

Photo via

If youre going to rent out your vacation home while youre away, you might want to consider renting a self storage unit near your property. That way, you can store any furniture, appliances, breakable items, or sentimental belongings that you dont want around visiting guests.

Now that you have a few ideas on what to look for and consider when buying a second home, its time to start your search for your dream vacation home. Check out this guide to vacation homes to find the option thats right for you!

Need to store items while renting out your vacation home? Extra Space Storage has more than 1,700 self storage facilities throughout the U.S. that can help! Find a storage unit near you!

Apply For Your Vacation Home Loan Or Arrange To Pay In Cash

Tips to Buying a Vacation Home

If youre planning on buying a vacation home with financing, your agent communicates mutual agreement to your lender. With that, you complete your full loan application , and your lender can start the underwriting process. Processing time for the full loan application can vary, but you can normally expect at least one week.

If you plan to pay in cash, make sure your funds are liquid and secure. You can start planning to deliver a cashiers check once the final steps in the vacation home sale process are fulfilled.

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Dont Forget About Maintenance Fees

All homes require maintenance. And average annual maintenance feesfor any sort of home, first or secondare about 2 percent of the property’s value each year. Buyers often underestimate the cost of maintaining a home, particularly when it comes to roof jobs, exterior paint, and other similar pesky long-term projects, but its important to consider that in your savings plan, too. If youre on the beach, for example, itll be costlier to maintain, says Malani.

Tip: Plan for annual maintenance costs equal to 2% of the home’s overall value.

Where To Buy Vacation Home Property

Looking to buy a vacation home, but not sure where to look? Location can be very important when it comes to vacation property, especially if you plan to rent out the home. The more appealing the location is, the more interested potential renters there will be.

Here are some of the top vacation home counties in 2021.2

Ready to buy your dream vacation home? Dive right in by getting started on refinancing for your mortgage and learning more about how to buy a second home.

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When One Party Needs Out

You and your co-buyers may think youll own the home together for decades. But life happens, situations change and an owner may need to sell unexpectedly. Its crucial to talk in advance to create a predetermined exit contingency plan.

Will one or more of the other owners be able to afford to buy the share of the departing owner and take on the additional operating expenses? If not, would you be willing for a third party you may not all know to step in as a buyer?

Your written agreement between the parties should include a clause giving the remaining owners the right of first refusal to purchase the share of a departing owner. The remaining members should also have the right to reject a proposed outside buyer.

How Much Youll Pay In Utilities And Other Property Costs

Living Stingy: Should you buy a Vacation Home?

If you have a cottage, it may make sense to shut off certain utilities such as cable and air conditioning when youre not there to save on expenses. However, you want to be careful with other utilities.

Dont forget to consider these property costs:

  • Winterizing: You have to think ahead when winterizing your cottage. If you just shut off the heat, the pipes could freeze and burst. On the other hand, you could shut the water off and avoid that problem altogether if you know youre not coming back for a while.
  • Accessibility: Depending on how rural your vacation property is, you need to consider road access. Is your country cottage off a paved road, or do you have to take dirt two-track to get there? Will you need a vehicle that can drive through deep snow, or will your cottage only be a three-season escape?
  • Water: Many rural properties are not on a city water system, so the water supply to your rustic cottage may come from a groundwater source such as a well or spring. You may even have your own septic system, which will likely require hiring a septic company to maintain on a schedule determined by how frequently the cottage is used.
  • Environment:If your property is lakefront, youll need to find out if you must pay for lake maintenance. Some areas spray the lake for bugs and clean up the lake bottom. Find out if these preventative measures are an additional charge or if theyre included with your taxes or homeowners association fees.

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