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Owning Your Slice of Paradise

June 8, 2018

Owning Your Slice of Paradise

For many families, a vacation home would be a dream come true. Having your own place near the beach or a cabin in the mountains would create an opportunity for family members to share great memories for years to come. And despite what many people might think, you don’t have to be super wealthy to have a vacation home.

As we enter the summer vacation season, Origin Bank offers a few tips and questions to ponder if you’re thinking about buying.

What’s your motivation for buying a vacation home?
The best answer is that you want one, and you can afford it. Vacation properties can be great financial investments, but that shouldn’t be the reason you buy one. Think about the risks and expenses of owning a home: maintenance, repairs, improvements, insurance, natural disasters, issues with nearby property owners. They all double when you buy another home. And as with any real estate property, markets for vacation homes can go up or down.

Some things to know before applying for a mortgage:
Lenders typically want a down payment of at least 20 percent. Anything lower might mean paying more in private mortgage insurance than with your primary home. The vacation property must be a single unit or condominium that you occupy for a portion of the year. It must be suitable for year-round occupancy. It also cannot be affected by a time-sharing ownership agreement, and you cannot own rental property in the same location.

Can you lease your property to offset the cost of owning it?
This one is complicated and likely calls for a qualified tax advisor, but the short answer is usually yes. In fact, you can rent your vacation home for up to 14 days a year without reporting the proceeds. Beyond that, any rent collected is taxable income. It’s possible you would be able to deduct all rental expenses if your property turns a net profit. But experts caution that, in most cases, that kind of scenario isn’t realistic. Ultimately, you buy a vacation home because you can afford it.

What are the alternatives?
A vacation home doesn’t have to be a stand-alone house. Buying a condo can provide a home in a great location that might be unaffordable otherwise. And consider that rentals can be found in just about any vacation area. Rentals let you test different locations without committing to a purchase. At the end of your stay, you close the door and leave the property behind.

Reselling could require an additional investment.
How marketable is your property if you decide to sell it later on? These days, buyers increasingly expect the same level of amenities they would find in any home ‒ cable-TV and internet service, microwaves, dishwashers and even hot tubs. A “bare bones” property might be a bargain for you, but unloading it down the road could mean spending money on upgrades in order to attract potential buyers.

Lastly, keep in mind that vacation properties often become retirement homes. If that’s your plan, choose a property that’s close enough to essential services like quality medical care.

These are just a few tips, but they cover many of the fundamental decisions you’ll face when buying vacation property. If you’d like to learn more about the process and other strategies that work for your family, contact us.


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