Important Factors to Keep in Mind When Purchasing a Vacation Home – Orange County Register

A wise friend once advised me to carefully consider before purchasing a vacation home.

These words came from a real estate professional with a substantial investment property portfolio. Buying a vacation home should not be taken lightly, as it brings significant changes to your life, routine, and monthly expenses until you decide to sell.

Before taking the leap, it’s crucial to consider the following:

Your Budget

Purchasing a vacation home, even a condominium, significantly impacts your monthly expenses. It often leads to not just an increase but a doubling of costs. Even if you own the home outright, you still have to pay for utilities, property tax, and insurance on a monthly basis. These expenses continue even if you’re unable to visit the home for extended periods. In the case of a mountain home, it may be inaccessible during winter, but you’ll still need to run the heater to prevent pipes from freezing, resulting in higher utility bills. While this expense brings no joy, it is necessary for maintenance purposes.

Before searching for a home, assess your budget. Can you afford to buy the home outright, or do you need a mortgage? Have you saved enough for a down payment? Will you still be financially comfortable after accounting for mortgage expenses and the costs associated with owning and maintaining a vacation home?

While day-to-day operations can be outsourced to a property management company, you remain financially responsible for the property’s upkeep. Your budget should serve as a guiding tool for your decisions moving forward.

Location, Location, Location

One common mistake among vacation home buyers is purchasing in markets driven solely by second home buyers. While it may seem like a logical choice, such markets tend to be more volatile and unreliable during economic downturns. Families often let go of their vacation homes to protect their primary residence, impacting the real estate market and potentially putting your investment at risk. This may not matter if the property is solely for personal use, but it can affect your bottom line if you consider turning it into an investment property.

Not all homes or neighborhoods are equal. A waterfront home with a breathtaking view is much more desirable than a property located on a busy street or near a major highway. Accessible parking may also be a crucial factor, such as restrictions on street parking near mountain homes during winter for snowplow purposes. Consider the potential for future expansion or additions to the home and research city ordinances in advance to avoid surprises as a homeowner.

Other factors to evaluate include crime rates, transportation options, amenities, schools, and the overall condition of the neighborhood. Is it better to buy the best home in a mediocre neighborhood or the least desirable home in the best neighborhood? These factors ultimately impact the resale value of your property.

Condition and Age of the Home

Purchasing a 20-year-old home that will require a new roof in five years may not be a major concern initially. However, time passes quickly, and the roof replacement will become a significant expense. To avoid surprises, hire a reputable home inspection company while the home is still in escrow to uncover any hidden problems and future expenses. Snow-covered roofs may hide damage, so a physical inspection is necessary. The final home inspection report can help negotiate future expense costs with the homeowner before closing escrow or at least prepare you for future expenses and adjust your budget accordingly.

Maintenance Costs

Maintaining a home doesn’t have to be challenging and can be outsourced to a property management company. However, vacation homes often require additional upkeep compared to primary residences. Many people buy waterfront or mountain homes without realizing the extra maintenance involved. They may be surprised when their waterfront deck rots due to moisture or when their mountain cabin needs repainting every five years due to extreme weather.

Moreover, since you may not visit your vacation home frequently, small issues that would be immediately noticeable in your primary residence could go unnoticed for months, resulting in costly, unplanned repairs. Research home maintenance requirements in regions with different weather conditions than what you’re used to before making a purchase.

Insurance

The insurance landscape in California has changed due to recent natural disasters, impacting the availability of homeowners coverage. Many insurance carriers are leaving the state, which can affect your ability to find insurance for your vacation home. Additionally, if your home has unique features like a log cabin style, you may struggle to find underwriters willing to provide full coverage, and specialized insurance may be costly. It’s essential to discuss coverage, anticipated usage, and the cost of vacation homeowners insurance with your agent when considering a home purchase.

Never make a decision to buy a vacation home impulsively, especially while on vacation in a different mindset. If you do decide a vacation home is desirable, approach it as a business transaction. Conduct thorough due diligence, evaluate the pros and cons, and familiarize yourself with the housing market and region where you’re considering a purchase. While owning a vacation home may initially sound dreamy, the reality of homeownership becomes apparent when major expenses arise.

Teri Parker is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. You can reach her via email at [email protected].