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How to buy or rent a holiday home

Are you wondering if a holiday home is right for you? Here are five questions to ask before you buy or rent a place.

The COVID-19 pandemic has made many of us think about how we take vacations. Some of us have embraced the staycation, set up cinemas in our backyards and taught us how to create restaurant quality meals. (Or at least halfway decent sourdough.) Other people have used their vacation time to explore nature, sharing the trails while staying at least six feet away from other hikers. Now, with another coronavirus summer on the horizon, some families are wondering if the best way to have a low-risk trip is to buy – or rent – their own vacation home.

"Vacation destinations are very popular right now," says Amanda Pendleton, an expert on home trends at Zillow. people are either considering a second holiday home or that teleworking allows them to take root in a holiday destination. "

If you are considering buying or renting a holiday home in 2021, you probably have many questions about the process. We asked Pendleton to answer five questions that many people have about vacation homes and homes – so heed her advice the next time you roll through Zillow (like the people in a certain Saturday Night Live sketch ) and ask yourself if it's time to invest in real estate

In this article:

Is it better to buy or rent a vacation home?

Many people assume the decision to rent or buy in your favorite destination is primarily emotional – do you want to buy it? type of home that can be used as a starting point for family memories, such as versus spending your vacation on a different rental property each year? While memory-building and other emotional factors should be considered, the question of whether to rent or buy a vacation home can actually come down to hard, cold numbers.

"How we usually look at this buy-rent question is with a breakeven analysis," Pendleton explains. “We have found that it makes more financial sense to buy versus rent if you plan to stay in the typical American home for two years or more. That equation changes with a holiday home, because the chance is that you are looking at short-term rentals instead of a year-long lease.

The equation to which Pendleton refers can be quantified. “Short-term rent, strengthening of home value and interest rates play a role in the equilibrium issue, along with the large transaction costs of buying and then selling a house. Home buyers can do math here. If your short-term rental costs during the year are significantly lower than your interest costs, plus the extra costs for homeowners such as HOA fees and maintenance, it makes more sense to rent – and vice versa.

What if the costs of renting and buying are roughly the same? "If both costs draw about the same, it might make sense to buy because you can build equity in the other home." That said, you should also consider your current financial status – and your long-term financial goals – before making any major purchases on a new vacation home. "If your first home has already been paid off, you have no outstanding debt, you have maximized your retirement savings and any college savings plans, then you probably have a solid financial position to buy a second home."

How close to home should your holiday home be?

Some holiday buyers want a weekend trip that can be reached in an hour's drive. Other people dream of buying a vacation home in a part of the world that they want to visit more often. Both options have their advantages and disadvantages – which means that before you start flipping through real estate ads for your potential vacation home, you should consider both the cost and the benefits of buying real estate in a particular vacation destination.

"Your travel expenses will be higher if you are interested in an apartment in Hawaii versus a destination you can get to on a gas tank," explains Pendleton. "These travel expenses and travel time will also limit how often you will be able to visit your second home. "

On the other hand, do not let the thought of having to buy" near home "prevent you from getting the vacation properties of your dreams. If you and your family are not the type who enjoys spending every weekend on to unpack the car so you can get to the lake at lunchtime, why not ask yourself what it would cost to rent or buy that apartment in Hawaii? After all, it's just a vacation if it feels like one – and if you do not is happy with the property, the place or the amount of travel required to get there, your vacation home can be an expensive job. [19659017] Who takes care of your vacation home when you do not live in it?

When it comes to chores: If you do not plan to use your leisure sh us every weekend it's probably worth asking yourself if you need someone else to keep an eye on your home when you are not there. In some cases, you can set up a simple video surveillance system or use smart devices like Amazon's Alexa to help you track what's happening in (and around) your property. In other cases, you may want to work with another person.

“You can hire a professional property manager to check in on your home when you are not living there and handle any home projects, landscaping or pool maintenance. , Says Pendleton. If you do not want to rent, you can consider asking a friend or relative to lend a hand. "Many other homeowners rely on friends, family and neighbors to do the job." If you have a friend who likes to stay by the house from time to time to make sure everything is as it should be, be sure to thank them for their efforts. (A case of their favorite drink goes a long way.)

Are you going to buy a vacation home with another family?

While sharing the cost of a vacation home with another family may sound tempting, but Pendleton suggests that you think carefully before buying a vacation home with friends or relatives. "A house share can definitely help make a second home more affordable, but there are thorny issues that you want to fix well in advance of this type of purchase."

These numbers include:

  • How much will each family invest in the cost of the home? If a family can afford a larger share of the payout, will they have more capital in the home?
  • How will the daily costs, from tools to maintenance, be shared? Will these costs be calculated by how much time each family spends at home?
  • What happens if each family uses the home differently? If a family regularly hosts parties that have more wear and tear on the home, for example, are they responsible for more of the maintenance and upkeep costs?
  • What happens if a family's financial situation changes and they can no longer afford to keep up with the mortgage and / or other expenses?
  • How will any profits from a possible sale be shared?

If you feel comfortable enough to have these potentially difficult conversations with another family, you may be ready to consider going into a vacation home with them. (You may also want to talk to a real estate expert and / or a lawyer, just to make sure you consider all the potential risks.)

Can you save money by renting your vacation home when you are not using it?

If your investment property is less of a weekend getaway and more of a seasonal getaway, you may be able to make some extra money by renting the property to other vacationers. "Renting your vacation home when you are not using it is a great way to recoup your expenses or even make money on your second home," explains Pendleton.

Of course, it will be the landlord with his own expenses – and a little extra work. "You want to take into account additional maintenance costs and property management costs, plus you need to depersonalize the home and make sure it is equipped with all the amenities that a tenant would need."

While websites like Airbnb make it easy to turn a vacation home into a vacation home – and our guide to making money with Airbnb can help you get started – do not assume that you will be able to earn enough from your rent to compensate for to own the home. "This year we learned how unpredictable rental income can be," says Pendleton. "Many were forced to cancel their vacation plans during the first months of the pandemic, which meant that vacation home owners could not rely on this income to make their monthly income."

In short, it is best to treat your vacation home as a source of some passive income, not a primary way to make money. "If you are planning to rent your home to cover certain costs, plan for unpredictability and make sure you can pay all your bills without the rental income."

Our Editorial Policy

Haven Life is a customer-centric life insurance agency that is supported and wholly owned by the Massachusetts Mutual Life Insurance Company (MassMutual). We believe that navigating life insurance decisions, your personal finances and general well-being can be refreshingly easy. ). We believe that navigating life insurance decisions, your personal finances and general well-being can be refreshingly easy.

Our content is created for educational purposes only. Haven Life does not support the companies, products, services or strategies discussed here, but we hope they can make your life a little less difficult if they suit your situation.

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