With mortgage rates rising and the housing market cooling, financial advisers say it’s important for buyers to consider the unexpected costs and pitfalls associated with beach homes.
According to Realtor.com chief economist Danielle Hale, the largest percentage of vacation home purchases close between the fall and early New Year. This is typically the off-season for primary home buying. For example, in the Lake Tahoe region, August and September are traditionally two of the busiest months of the year, with buyers dreaming of spending the winter holidays in their new homes and sellers looking to maintain their properties over the winter. I don’t think you need to. Britt Krezy, a National Realtor who specializes in the area, said:
Soaring housing prices During the pandemic in the second home market such as phoenix, Naples, FloridaMyrtle Beach, South Carolina, and Las Vegas, even more than the rest of the country. He sold for $516,423 in April, up 19.9% year-on-year, according to the latest data available from .
Many economists say the beach house bonanza appears to be coming to an end. Redfin chief economist Darryl Fairweather said second-home sales have dropped significantly from last year’s boom, falling below pre-pandemic levels (February 2020) for the first time in two years.
Many Americans still envision their second home as a source of family memories, wealth, rental income, and tax benefits if all goes according to plan. These buyers aren’t always aware of the risks of renting trouble, family arguments over real estate, and unexpected expenses.
“A vacation home can quickly turn into a nightmare if you don’t know how to manage it properly. Real estate investing for beginners.
The four biggest risks when buying a vacation home are:
Don’t rely on rental income
After purchasing a ski cabin in Red Lodge, Montana, Tim Bauer said he quickly learned to prepare for the unexpected.
2021 has been a great year for rentals thanks to the pandemic and curtailed demand due to remote work arrangements, but this year saw a massive local flood Almost all cabin reservations for June and July have been cancelled.
He lost about 20% of his annual income on the two-bedroom cabins he rents for an average of about $215 a night.
“It’s important to have a cash buffer ready for downturns and unforeseen events where demand may slow down or stop altogether,” he said.
Mr. Bauer, a financial planner, has a separate checking account for the cabin, with a cushion of about $1. Cost for 3-4 months.
Relying on rental income to pay your mortgage and other expenses is risky for other reasons. Local rules regarding short-term rentals are subject to change. Los Angeles real estate agent Darin Epic recently discouraged clients from buying vacation homes after learning of strict rules restricting short-term rentals in Palm Desert, California.
Lakehouse may start a family feud
Many vacation home owners want their property to remain in the family for generations, envisioning a scene in which relatives gather at home after their parents have passed away.
But Pam Lucina, chief fiduciary officer of Northern Trust Wealth Management, said not everyone in the family feels equally invested in that vision and is more interested in preserving the wealth. He said there may not be
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Lucina has clients who discuss how families can share costs and who can stay in the house during the height of the season.
“This creates a huge source of conflict,” she said.
create guidelines before you get nervousIt also includes a plan for how the property will be managed after the original buyer dies, Lucina said. Ask the intended beneficiaries if they want the property and if they have the resources to pay for maintenance, taxes and other expenses, she said.
Hidden costs lurk
Always budget for unexpected expenses.
Jeff Barens has owned a vacation home with his wife Kristi Barens for the last ten years.The couple bought a rental house jackson hole, Wow, last summer. A few days before closing, they learned that to qualify for fire insurance, they would have to make expensive changes to their home, such as a new roof and improved landscaping.
“It’s the things you can’t control that can have a significant impact,” he said.
Jamie Lane, vice president of research at vacation rental research firm AirDNA, says hosts typically set aside 5% to 10% of their home’s annual rental income for unexpected expenses like pipes, water damage, and a new roof. recommended. The percentage they need to save usually depends on the age of the property, he said.
No guaranteed return on investment
Karen Altfest, a financial planner in New York City, advises her clients to limit the value of their vacation properties to more than 15% of their net worth to reduce their financial stress.
Sam Dogen, creator of financial samurai On the website, the author of “Buy This, Not That” said people need to understand their wealth. may not thank Especially in the current market, some experts expect prices to fall.
Dogen purchased a two-bedroom condominium on Lake Tahoe in 2007 for approximately $715,000. However, the financial crisis caused the value of his assets to plummet by about 40% in the years that followed.
Today, the property is still worth less than it paid for, he said.
“It was a poor investment,” he said.
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