Don’t let dreams of a tropical breeze keep you from thinking it through.
Do you dream of a retreat for you and your family, away from your everyday routine — a cottage on a lake, a cabin in the woods, a beachside bungalow?
There’s much to think about before purchasing a second home, so don’t let the allure of a tropical breeze and majestic palm trees take over your senses before thinking it through. Consider these 6 tips:
- Determine if you can afford a second home and how you’ll pay for it. Be realistic about what you can afford. A first step can be to decide if you’ll need to take out a loan or pursue other financing. It’s a good idea to speak with your banker about getting prequalified, as there are different parameters around financing options for second homes, and a banker can help you figure out how much you can afford.
- Choose a location. Think about what you want out of the home. Is it a short- or long-term investment? Do you want to rent it out? Are you interested in certain hobbies and activities?If your priority is a return on investment, you might want to opt for a popular vacation spot that will provide you with a steady stream of renters and future buyers. For some inspiration, check out Zillow’s Best Place to Buy a Vacation Home for a recommendation based on your needs.
- Consult with a tax advisor. You’ll be paying property taxes, which will vary based on where you want to buy. Additionally, if you plan to rent out your home, you’ll need to pay income taxes on your rental income. So talk with a professional and ensure you’re prepared for these costs1.
- Create a budget. Make sure you’re factoring in additional costs, such as property taxes, insurance, furniture and appliances, and repairs.
- Think about the details. Don’t forget to consider often-overlooked details, such as:
- How much will it cost to travel to and from your vacation retreat?
- Are you prepared for year-round upkeep of two homes?
- Who will care for your primary residence when you’re away?
For more things to consider, check out this Wall Street Journal article on things to think about before buying a vacation home.
- If you plan to rent out your vacation home, educate yourself on being a landlord. Consider our seven suggestions to help you protect your property — and avoid losing money.
If you’re simply not ready to take the leap solo, purchasing a home with family or friends may be an option. Just make sure to talk through these 5 potential concerns to keep your joint retreat from turning into a residence regret.
1 BMO Harris Bank does not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors.