8 tips for house hunting on vacation
You're on vacation.
Lounging at the pool. Reading the novel of the summer.
Maybe throwing back a few mai tais and ... checking out the local
real estate market?
That's no way to spend a vacation, many will say,
but it may not be such a crazy idea.
After all, one in three residential homes purchased
in 2004 was a second home, according to the National Association
of Realtors. And since the average income of those buyers was a
solidly middle-class $80,000, a beach condo or a mountain cabin
may not be out of reach. If you think you'd like to own a piece
of paradise, using your vacation to house-hunt is just a smart way
Unlike your "I (heart) the Poconos" T-shirt,
however, a second home shouldn't be an impulse buy. "There
are people who come down here with the express desire to go on vacation
and they go home buying a house," says Marcus Truett, a second-homes
specialist with Ronald
P. Bressan Real Estate in Orlando. "But there are downsides
to buying like that, like people overextending themselves or believing
in a lot of hype."
Instead, if you're considering buying a second home,
do your homework before you ever pack your bags, then use your trip
to decide if this corner of paradise is really for you. Your vacation
costs won't be tax deductible -- house-hunting expenses were ruled
out as a deduction years ago -- but you'll save money by avoiding
repeat visits and by making a more-educated buy.
Here are four things you should do before you leave
for vacation this year, and four things to do when you're already
Before you go:
- Figure out your motivation. Most
second-home buyers want a vacation spot, an investment property,
a retirement home, or some combination of all three. Before you
begin to scout sites, you need to figure out your vision and consider
whether home No. 2 is a realistic fit for your lifestyle. "If
you think you want to get a weekend place but your kids are in
soccer games every weekend, the likelihood of you actually getting
out there is low," says David C. Hehman, CEO of EscapeHomes.com,
an online marketplace for buyers and sellers of second homes.
- Find a real estate agent. For
potential home buyers, connecting with a good agent is critical.
But if you wait to set an appointment with an agent until after
you're already on vacation, you may be out of luck. In such popular
spots as San Diego or Branson, Mo., real estate agents often hesitate
to spend time with vacationers for fear that they'll only serve
as glorified tour guides. "Don't get annoyed when [agents]
won't drop what they're doing and take you out on a sales call
blindly," says Christine Hrib Karpinski, author of "How
to Rent Vacation Properties by Owner." Remember, she explains,
"Thousands of other [tourists] had that same thought."
To avoid hassles, begin a dialogue with a real estate agent --
preferably one who specializes in second homes -- before you leave.
To find one, visit EscapesHomes.com.
- Get mortgage preapproval. By
doing the paperwork to get lender preapproval, you'll get your
financial house in order and decide on the down payment and monthly
mortgage payment you can afford. Although you may be counting
on rental income to pay for a sizable chunk of your mortgage,
don't get in over your head, says Truett. "It's like any
other investment: Make sure you're willing to take a short-term
loss in rentals."
- Think about taxes. How you use
your second home will determine its impact on your taxes. For
instance, if you rent your vacation home, but stay in it at least
two weeks a year (or more than 10 percent of the time it was rented,
whichever is longer), you can deduct your mortgage interest and
property taxes. An investment property or a home that's rented
out and never used for personal pleasure will be subject to different
deduction standards, so check with an accountant before committing.
While you're there:
- Find the nearest Starbucks. Not
that your dream town needs the ubiquitous coffee-monger, but you
do need to get to know the area before you drop the cash for a
vacation home there. While you're on vacation, scout out the hospital,
the restaurants and the grocery store, too, and make sure that
the place offers enough of what you love to keep your interest
over the long haul. Another factor is proximity to tourist attractions.
In Orlando, says Truett, a home with a 15-minute drive to Disney
World can produce thousands more in rental income than a home
with a 45-minute drive.
- Talk to locals. You may have
been vacationing in the same Berkshires hamlet since you were
a kid, but you still probably have no idea what it's like off-season
-- a particularly relevant point if you're hoping to rent your
place. So hit up a few locals for their no-holds-barred take on
the town. The local diner, a bookstore, a park or the lake make
good places to strike up a conversation, or ask your real estate
agent for real-people referrals.
- Check out the vacation rental market.
Your agent can clue you in on local home values, but perhaps more
important is how well vacation properties rent, and for how much.
"As long as you're in a decent tourism market, you can figure
you'll get about 12 weeks of rentals, because most tourism areas
have 12 peak weeks," says Hrib Karpinski. Ideally, your monthly
mortgage payment will be roughly the equivalent of one peak-week
rental, so with just 12 weeks of rentals you'll break even --
but the size of your mortgage and the going rate for rentals will
dictate whether that's feasible. Also, those figures only work,
Hrib Karpinski warns, if you rent the property yourself, contracting
with your own maintenance and housekeeping staffers. If that's
not in your plans, make a few calls to local property management
agencies and ask about their cut. It may be up to 50 percent,
with extra fees tacked onto that.
- Crunch the numbers again. Visit
a few on-the-market homes to see what's available in your price
range, keeping in mind how you intend to use the home. For example,
if you want to rent it out, granite countertops pale in importance
next to a pool and hot tub. When you find something you like,
think about big-picture numbers: Beyond the down payment and monthly
mortgage payments, you'll need to factor in about 2 percent of
the price of your home for yearly maintenance costs, such as repairs
for a recalcitrant water heater, plus another $5,000 to $15,000
for furnishings. You may also find that insurance is pricier than
what you're used to. For instance, hurricane insurance for a beachfront
home in Florida could run up to $4,000 a year. "Do the numbers
work," says Hehman. "The last thing you want to do is
sweat about how much it's costing you to own this property."
Although you don't want to spend your whole vacation
thinking about real estate, doing a little legwork can pay off.
And if all goes well, you'll be seeing a lot more of your piece
of paradise in the future.