How to Know If You’re Ready to Buy a Vacation Home

Staycation might be the worst word mashup ever devised. A home-based vacation—really? Maybe so, if your stay-at-home getaway is a seaside villa on your favorite beach or a rustic cabin just steps away from a legendary trout fishing stream.

Vacation home sales were down from the previous year in 2015, but were still at their second highest level since 2006, according to the National Association of Realtors. And prices haven’t sagged. The median vacation home price was $192,000, up 28 percent from 2014. Lawrence Yun, the NAR’s chief economist, believes strong demand and fewer bargains are driving the figures.

If you’re thinking of getting your own vacation home, here’s how to know when to buy.

When You Have Enough Time

Buy when you and your family, if you have one, have schedules that let you take full advantage of the property. Travel time is a factor, so keep distance in mind. Most owners live within 200 miles of their vacation home, according to NAR.

“My wife and I bought a home in 2007 on beautiful Anna Maria Island,” says Ron Schmedly of Cincinnati. The Florida getaway is about 1,000 miles away from his Ohio home. “The location couldn’t be better, and we spent almost eight weeks a year on the beach and having a great time.”

But as the couple’s children grew, school activities began to dominate weekends. He says now the family only spends Thanksgiving, New Year’s and every other spring break at the Florida retreat.

“I’m sure once our kids finish high school, which is 11 years away, we will spend more time down there, but I do think we purchased a vacation home too early in our lives to get the best use out of it,” he admits.

When You Have Enough Money

The value you gain from your home will increase the more time you spend in it. But any way you slice it, a second home is another expense — often, a considerable one. You’ll want to be sure you’re comfortable financially before you buy.

David Gorman, regional sales executive at Bank of America, says potential buyers should consider:

  • Their incomes and financial cushions. You should have a stable income and be able to pay for the additional expenses that will come with a second home, such as insurance, maintenance, repairs, furnishings and property management fees.
  • Their debt. Lenders generally want your debt, including the potential new mortgage, to represent no more than 36 percent of your monthly pre-tax income.
  • Their down payments. Loans for vacation homes tend to require larger down payments than those for primary residences, Gorman says. However, the mortgage interest rates you’re offered can also improve with larger down payments—so your monthly payment might be lower.

You’ll also pay state and federal taxes on your second property. The rates, and how much of those taxes you can deduct, are largely dependent on the type of property you buy and how you use it. Consult a tax professional for guidance before you go house shopping.

Prior to looking at properties, you should also understand your mortgage options. And getting pre-qualified for a loan can help ensure that you receive the best possible rate.

Vacation Homes Can Add Value

The decision to buy a second home is one you’ll want to consider carefully. But vacation properties don’t have to be money pits.

“The potential for building long-term equity is a major benefit to owning a vacation home,” Gorman says. “While all assets fluctuate in value in the short term, vacation homes are likely to retain their value and appreciate because they are located in popular geographic areas with a limited housing supply.”

There’s also value to be gained if you rent out your home when you’re not there. The increasingly absentee Schmedlys began to do that in 2014.

John Banczak, executive chairman of TurnKey Vacation Rentals, says a good rule of thumb is for every $100,000 you spend to buy a vacation home, you should aim to make $12,000 to $14,000 of rental income per year.

And then your staycation home will really earn its keep.

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