When it comes to purchasing a vacation home, buyers often underestimate the cost of maintenance and upkeep. According to Hehman, a good rule of thumb is to set aside 2% of the home's value each year for maintenance. For professionally managed rental properties, the management company will typically take 20-50% of the rental income. For those who don't have the means to buy an idyllic leisure retreat, Kelly suggests starting with a more affordable, utilitarian rental property close to home. When it comes to financing, lenders may credit up to 70-75% of projected fair rents in the market (in Canada and the U.
S. Department of State, respectively). It's important to factor in the cost of maintenance for a vacation home, such as lawn care, oven tuning, painting, cleaning gutters and replacing putty. To reduce risk, consider buying and managing a vacation home as a joint venture with family or friends. Buying a vacation home can be costly and there is always the risk that rental income won't be enough to offset expenses.
While vacation homes can gain value over time, short-term speculation in residential real estate is risky business. The Baby Boomer generation is more likely to be able to afford second homes and vacation homes than previous generations. When calculating whether you can afford a vacation home, remember to factor in travel expenses and special insurance coverage such as homeowners insurance if you plan to rent your vacation home. Most families only use second homes and vacation homes for 6-8 weeks a year.
