Crystal Faulkner and Tom Cooney regular columnists for BusinessWise (Photo: The Enquirer/Meg Vogel)
Question: My spouse and I are working remotely and could use a change of scenery. Do you have any advice for purchasing a vacation home?
A: With mortgage interest rates below 3% for the first time in almost 50 years, and remote work becoming the new reality in the COVID-19 era, many Americans are considering a vacation home purchase. Whether it’s a cabin in the mountains or a house that sits beachside, many are finding retreats from their homes to relax and connect with their families.
You may face a competitive market. Current travel bans and social distancing restrictions have halted many families from traveling to their favorite vacation destinations. Staying safe during the pandemic has led many to seek private vacations. Realtor.com reports that the U.S. housing inventory fell by 27% in June 2020, compared to June 2019. Popular beachfront and mountain vacation home destinations currently have limited inventory. If facing an inventory shortage in an area you like, consult a trusted real estate agent for recommendations on alternate markets.
Local real estate agents can share a wealth of knowledge on a new area. Understanding a community’s real estate market is important when seeking a vacation home. Finding a local real estate agent who lives in or near your desired community can be the key to a successful purchase. A local agent will likely have experience and information to share on the best time to buy, and which areas outside of the bigger tourist traps may offer you the most house for your money.
A local real estate agent can also refer you to a local lender. Second-home mortgages differ from primary-home mortgages and local lenders in a vacation destination are likely seasoned in working with families on buying their second homes.
Take on a renovation project. While turnkey homes are in high demand, there are homes available, often at a lower price point, that may require renovations. If you have the time and money a renovation will demand, a vacation home renovation may allow you to design the home you’re looking for but haven’t been able to find in the current home buying market.
Consult neighbors to learn about the community before purchasing. Talking to locals before buying a property can help you understand how the community operates through different seasons. If potential neighbors frequently rent their properties out, you may learn that peak months are less relaxing than you assumed. If the community you’re considering becomes a party destination during certain months, it is important to have that information up front and not be faced with a surprise down the road.
Assess the internet options. For those intending to work remotely at a vacation home, remember to assess the wi-fi internet options before buying. Some secluded areas may not have the wi-fi capabilities you’re used to in your primary residence. Ask neighbors, local real estate agents, and local internet service providers about their experience in the area and what options you will have as a new resident.
Consider renting out your new vacation home for another income stream. Once you own your new vacation home, you may decide to rent out the home during times you’re away. Although you will pay tax on rental income for renting out your home more than two weeks during the year, the Internal Revenue Service (IRS) allows deductions for necessary expenses such as cleaning maintenance, utility bills, and insurance. There are very specific rules to comply with if you plan on using your vacation home as a rental so be sure to discuss the feasibility with a financial professional to be sure you understand the tax consequences that will be relevant to your situation.
The combination of the low interest rate environment, the ability to work remotely and the reduced housing inventory have resulted in homebuyers coming out of the woodwork searching for vacation properties to purchase. When you are on the house hunt for your dream vacation home and may feel an urge to act quickly, stay smart and consult local experts to ensure you’re making a confident choice.
Crystal Faulkner is Cincinnati market leader with MCM CPAs & Advisors, a CPA and advisory firm offering expert guidance and beyond the bottom line thinking for today’s public and private businesses large and small, not-for-profits, governmental entities and individuals. Tom Cooney is with Wealth Dimensions, an investment advisory firm. For additional information, call 513-768-6796 or visit online at mcmcpa.com. You can listen to Tom and Crystal daily on WMKV and WLHS on “BusinessWise,” a morning and afternoon radio show that profiles highly successful people, companies, organizations and issues throughout our region.
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