Buying a Vacation Home in the US? Here's What You Need to Know

Do you daydream about a waterfront home where you and your family can escape the stress of daily life on a whim? Forget the worries about availability, fees, or restrictions. As a bonus, you can cover costs by renting the home out periodically.

If owning a vacation home is part of your American dream, here's some useful information to help you make it a reality.

• Be Realistic
  People often get caught up in the emotional aspect of having a vacation home without considering how much they'll use it. What if you grow tired of the spot and want to vacation in different locations? Ultimately, making a rental arrangement with another homeowner in the area may be more cost-effective.
• Crunch the Numbers
  You may spend less time at your vacation home, but it's every bit as much of an expense as your primary residence. Create a detailed budget including mortgage, insurance, taxes, and contingencies such as maintenance and repairs. Be sure to consider how purchasing a vacation home fits in with retirement, kids' college tuition, and other big-picture goals.
• Plan for Higher Rates
  Many people who purchase vacation homes still have mortgages on their primary homes, making them a bigger financial risk. As a result, lenders sometimes require larger down payments and higher interest rates for second-home mortgages, especially if it's an investment property.
• Perform Due Diligence
  While a vacation home may mean fun and relaxation, it's also an investment. Approach the purchase just as you would any other major purchase and gather all the appropriate facts. You might discover that the location in mind has a dismal outlook regarding real estate trends.
• Rent First
  Are you considering a certain area based on recommendations from friends or glowing reviews online or in travel magazines? That doesn't mean it's a good fit for you. Rent a home first and get to know the area before you make a bigger commitment.
• Know the Difference Between "Vacation" and "Investment"
  Regardless of your perspective, lenders and the IRS have specific definitions of what constitutes a vacation home vs. an investment property. For example, some lenders consider a second home an investment property if you rent it out, while the IRS affords some leeway.
• Learn the Tax Ramifications
  Tax write-offs are one of the benefits of homeownership. This also applies to vacation homes, but different criteria may apply. It's well worth the cost to consult an attorney, CPA, or another professional knowledgeable about current tax codes.
• Have a Rental Plan
  How much will you charge? Do the rules of a homeowners association govern the property? Will you use Airbnb or another third-party service? If you're planning on renting out the home for a significant part of the time, don't expect to play it by ear.
• Be Cautious About Alternative Ownership Options
  Fractional ownership, timeshares, and other plans involving multiple parties may sound like a good answer but tread lightly. Not only do these plans come with a wide range of restrictions, but reselling them can be difficult at best.
• Work With a Local Real Estate Agent
  The expert guidance you get from a real estate agent who knows the area you're looking at can be invaluable.

Businessman Arnold Glasow once said, "The average vacation is one-tenth playing and nine-tenths paying." With clear-eyed planning, you can change that ratio with a smart investment in a vacation home that provides endless enjoyment.

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