Vacation Property Purchase: A Buyer’s Checklist
Vacation Property Outlook
The vacation property market is changing for the better. Sales of these properties increased 57% from 2013 to 2014, the largest increase since the National Association of Realtors began tracking this data in 2003. (AnnaMaria Androitis, WSJ) With rates still low and sales activity increasing, 2015 is a great year to purchase a vacation home.
Owning a vacation property is an exciting prospect, but buyers need to be aware and informed of the many aspects of the purchase process. Most importantly, buyers must determine if the vacation home they’re interested in is reasonably priced. Although sales of vacation homes have steadily increased, there are still many good deals available. Average prices for vacation homes fell 11% nationally in 2014 while the number of sales increased by 57%. This change is attributed to a larger number of sales of smaller, less-expensive, and foreclosed homes. (Androitis)
Considerations Before Buying a Vacation Home
Due to the competitive nature of some markets, buyers need to predetermine the maximum amount they are comfortable paying for a vacation home. It is wise to avoid putting financial stress on their families by buying vacation properties they cannot truly afford.
Buyers should obtain preapproval letters from their banks if they are financing prior to their search. Some banks require a minimum FICA score of 740 when a 10% down payment is made on a vacation home. In contrast, borrowers only need a minimum score of 680 when putting down 5% on a primary residence. (Androitis)
It is also crucial for buyers to understand all of the expenses associated with a vacation home. First of all, insurance policies can be very expensive, especially for waterfront properties near a river, lake, or ocean. The nationwide median price of homeowners’ insurance was $1,034 in 2012, though the average premium in Florida was $2,084. (Androitis) Additionally, some areas may require flood insurance for waterfront properties; otherwise insurance companies can deny claims for conditions such as wind damage.
Renting Your Vacation Home
Buyers of vacation homes are often attracted to the possibility of receiving rental income when they are not using the property. There are, however, many points to consider when becoming a landlord of vacation property. Areas that seem lucrative can suddenly change, leaving vacation homeowners unable to rent their properties. Buyers must understand the true rental demand in an area, and the times of year that can provide the most income.
In order to make an optimal rental income, homeowners need to maintain enough savings to keep up their rental properties. Obtaining a security deposit can be an excellent way to ensure the availability of funds for repairs to the property, if necessary. In addition, a separate insurance policy may be needed when renting to others, which can sometimes cost up to 30% more than an average homeowners policy. (Androitis) Property owners who rent their homes need to be insured against injury to tenants and damage to their property.
Planning for the Future of Your Vacation Home
Another important step in purchasing a vacation home is determining goals for the future. Many buyers want to capitalize on lucrative markets and rising prices in order to make a quick profit. In 2014, the National Association of Realtors stated that 28% of buyers of vacation homes sold their properties within two years. (Androitis)
It is important to consider risk factors when purchasing vacation homes, such as a significant increase in construction activity in the area. Climate change can also seriously impact regions known for outdoor activities (such as ski resorts), and drastically change travel patterns and seasonal demand.
Finally, as in all others real estate purchase and sale decisions, it is imperative that you obtain professional and expert advice from a licensed and reputable Realtor when purchasing a vacation property.
Adirondack Real Estate
So what does this all mean for those looking to purchase a vacation home in the Adirondack area? It’s all good news. And with a new resort and planning underway in the area there’s never been a better time to invest in Adirondack real estate. If you are interested in finding out more give us a call at 315-663-7022.