Thinking about buying that splendid vacation home? The questions to ask.
You’re sitting on the porch of a quaint inn, sipping a cocktail after a day at the beach, keeping an eye on your kids playing in the yard, thumbing through the real estate picture book that you grabbed at the cute corner store. This lifestyle seems mighty fine. You start doing some figuring, then you call to your spouse. “Honey,” you say, “I was thinking maybe we could buy a place here.” Ah, the question that emerges as reliably as traffic on the bridge each summer: Should we buy a vacation home? The answer comes down to finances, logistics and emotion.
First, finances. Lenders' requirements for a vacation home are different from a primary residence. For example, if you’ll rely on renters to help pay your mortgage, lenders want a bigger down payment and higher interest rates. If your own house is paid for, consider taking out an equity loan to pay for the vacation home, says Caroline Heim, a certified public accountant in Fairfield. “Usually there’s no closing cost and no down payment with an equity loan,” she says.
There can be tax benefits to renting out a summer home, but there are many caveats, Heim warns. Basically, if you rent out the place for fifteen days or more, you must report rental income to the IRS, but you can deduct rental expenses up to the gross rental income. “I don’t think you buy things these days and think about your tax savings, because there are fewer tax benefits,” Heim says. “You buy it because you want it and because you’ll use it.”
Ask yourself, are you the only one who loves the area or do your spouse and your kids love it as well? Will the house suit you if family size changes? How long does it take to get there? If your trip takes longer than three hours, you will visit less frequently, experts agree. If the house is near the water, do you have beach rights? “You can’t just assume that if you buy a house on Main Street that you can go to the beach at the end of Main Street. You might have to live in a certain district,” says Ann Marie Wheeler, a Darien resident who owns a second home in Rhode Island. Before you buy, explore activities in town, she recommends. Even though you might like to boogie board now, you might be less interested as you age. Find out about golf, tennis, hiking, biking, shopping and the library, she says, “that way you aren’t surprised.”
Also beware hidden costs and headaches. You might have to pay taxes to the fire district, sewer services, water control and for a host of other things you don’t pay for separately at home. These bills come year-round, even if you’re only there for a couple of months.
“You need to think about being an absentee homeowner,” says Dana Fead, a Realtor with Berkshire Hathaway HomeServices in Darien. “There will be all kinds of weather, storms, pipes freezing, the heat going out, and all this with the house left unvisited for months at a time.” Property management companies, cleaning services and security systems can help, but they cost money. “If you’re going to a place that is a retreat and a sanctuary, then it is a lovely luxury to give to yourself. But that good feeling might go away as soon as you get a call at home on a Sunday at 6 o’clock saying there’s a hurricane coming and you need to go batten down the hatches.”