Many of us dream about buying a vacation home – whether it is a summer cottage, winter retreat or tropical hideaway – and some of us may be lucky enough to make this dream a reality. If you are considering taking the plunge, here are five tips to help you make an informed decision:
1. Use your head as well as your heart
It's easy to be swept away with idyllic dreams of a holiday home of your own – whether it’s sipping cocktails while looking out on the water or relaxing in front of a blazing fire. But you also need to make sure you are making the right decision for this stage of your life. Make a list of pros and cons before you make such a big purchase and talk to friends and family who’ve already gotten a cottage or vacation home to learn from their mistakes.
2. Try before you buy
You will be setting down roots in a particular area, so make sure you truly love it. Visit the area more than once – and even visit other areas for comparison – to be sure it’s the locale for you.
3. Weigh all the costs
The total price of ownership may surprise you, and it’s better to be surprised sooner rather than later. Buying your new home is just the beginning – factor in property taxes, insurance (which tends to be steeper for vacation homes), maintenance and other carrying costs. Financing terms for a second home can be more stringent and if you buy outside of the country you’ll need to weigh fluctuating exchange rates and look into taxation for foreign residents. However, if the property has rental income possibilities, this can take a bite out of overall costs.
4. Make it a family affair
Does your family share your dream? Vacation homes can often bring families closer together, but as children grow their interests and commitments may change. Passing the property on to your children is an incredible gift, but they could be subjected to hefty capital gains taxes and other estate planning considerations should be explored.
5. Think outside the box
You may be able to fulfill your dream in ways that may fit better into your lifestyle and financial plan. Time sharing with friends or renting might provide you with greater flexibility. Joining the tiny home movement might be more financially feasible. Camping or RVing might give you the freedom to live the dream for a few years until priorities change. Explore all the options out there.
Buying a vacation home can be a dream come true for you and your family. Talk to your financial advisor about how to incorporate it into your financial plan and make the dream a reality.