2 Important Things to Consider Before You Buy Your Vacation Home

For many of us, the “American Dream” typically includes a combination of personal and professional success coupled with a slew of expensive possessions like cars, boats, and of course- the ever popular, always desirable vacation home. Think about it. Every time you are on vacation it just creeps into your mind, “we should do this for a month every year” or “wouldn’t it be nice to own some property here?”

Well if you are ever lucky enough to actually be in the position to seriously consider these thoughts, there are a few things you’ll want to work on beforehand. If you don’t plan out the purchase of a vacation home properly, it can not only evaporate your bank account, but bring along nasty tax and credit implications too. Therefore, here are two things that experts suggest you must prioritize before you can realistically purchase your vacation home:

1. Plan to Rent, Rent, and Rent Some More!- One of the first questions you need to ask yourself is- “how often am I actually going to be able to get here every year?” Since most of us don’t have the luxury to make a vacation home a weekly or monthly getaway, you’ll want to strongly consider establishing the home as a rental property. Maintaining a house that no one is living in can be expensive, and coupled with a second mortgage and additional utilities payments, why not have renters pick up some of the tab throughout the year? There’s two ways to look at it from a schedule standpoint- you can either pick the big weekends (i.e. 4^th of July/Memorial and Labor Day for a beach house) for yourselves and then rent out the rest of the season; or truly capitalize on the high tourism during those dates with a raised rental cost, which would then allow you to enjoy more of the season during those nice “less crowded” weekends. Either way, come up with a plan that the whole family can agree upon and map out your rentals well in advanced. Once you get things going, it’ll be up to you to maintain a desirable location that attracts repeat renters year after year; it may take a few seasons to get established, but then the house can really start to pay for itself through your busier months.
2. Understand the Taxes and Local Rules- It’s important to remember that the majority of income you receive through renting one of your properties is actually taxable on state and federal returns. Experts claim that “if you are doing short-term rentals, usually of less than six months, your state and county consider you an innkeeper and expect you to collect the same lodging taxes that hotels collect and pay those to the appropriate authorities.” Furthermore, not every home can legally be leveraged as a rental property; Homeowner or condo associations may set rules for rentals, as may certain cities that are against the practice in support of a “locals only” private setting. Therefore, you’ll want to do some serious due diligence with not only local government, but potential listing agent partners in the area and even your direct neighbors as well, before putting a bid in on the house. Do not overextend without educating yourself first; the last thing you want is your vacation home dreams putting you in hot water with either the IRS or your current property’s payment structure.