Thinking about buying a vacation home? A second home is a major financial commitment. How do you pay for it? Where should you buy? Is it worth the extra cost?
Buying a vacation home as a young family
In my experience, more young people are exploring the idea of owning a vacation home. Your career and choice of kids’ schooling plays into this decision. But with increased “work from anywhere” careers, this is becoming a great option.
So where are young people buying second homes?
Proximity and ease of travel are popular requirements for many families. For those in the Phoenix area, places like Payson and surrounding locations (Pine, Strawberry) are trendy, and for good reason. Not only can you get temperatures twenty degrees cooler than the Valley, you can get there in under ninety minutes. This makes weekend getaways less of a hassle!
Others are looking at homes in different states. Beach and lake houses are options for families who plan to spend extended periods of time (like summer vacation) in one spot instead of driving back and forth on weekends. While the purchase price of these homes is higher, some are also using them as vacation rentals to generate extra income.
Buying a vacation home as a retiree
If you are a parent of adult children, buying a vacation home can be a great way to enjoy time with your kids and grandkids. Consider this: if leaving a financial legacy to your kids is important to you, what about enjoying that legacy while you’re still alive? Buying a vacation home you can enjoy with your family is an overlooked way to give your legacy now!
From your kids’ perspective, not only do they enjoy time spent with you, it’s also a financial blessing. Now they have a place to get away without the financial burden of paying for a costly vacation.
Since retirees tend to spend more time at their second house than a young professional, they are more willing to drive a little farther than young families. For residents in the Valley, places like Flagstaff, Prescott, Heber and Pinetop are popular destinations.
Paying for a vacation house
Even if you have the ability to pay cash for a house, obtaining a mortgage is a wise way to purchase the house while interest rates are still at historically low levels.
Unlike getting an investment property (i.e., rental), a mortgage for a vacation home looks a lot like a mortgage for a primary residence. However, to get a mortgage for a vacation home you will need a minimum 10% down payment.
Additional expenses
Getting your house ready to live in comes with many up-front costs. If you’re like me, your first house or apartment was furnished with mostly inexpensive IKEA furniture and garage sale finds. Over time I’ve added nicer pieces of furniture, kitchen gadgets and upgrades to certain rooms.
Buying a vacation home means you will need to buy a lot of furniture all at once. If you have kids or other family members that will stay with you, this involves getting multiple bedrooms and bathrooms ready to live in.
Even though you’ll spend time and money furnishing it up-front, be prepared to have a constant shopping list of house items. Random kitchen tools you don’t think of until you need them (like that 9-inch pie plate for your Thanksgiving pie) will haunt you for the first few years of vacation home ownership.
Ongoing expenses involve things like property taxes, insurance, utilities and the cost to travel to and from the house. Since the house will be empty frequently, another wise expense to add is a security and monitoring system.
Is it worth it?
To me, the question of whether or not to buy a vacation home is like playing golf. I love playing golf but hate spending $80 on greens fees. Getting a country club membership is tempting because I can play golf for “free,” I just have to pay several thousand each year for the membership!
A vacation home will cost more money than if you paid for a few family vacations each year. But the ability to take a quick drive to the mountains for a few days with your family can be worth the additional cost. A vacation home is also a way to create memories and a lasting legacy.
To learn more about qualifying for a vacation home mortgage, reach out to our mortgage team.
