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Six Questions to Answer When Considering
Buying a Vacation Home

If the thought of escaping to your very own retreat on the beach, in the mountains or near the small town you grew up in appeals to you, you're not alone. There are 6.8 million vacation homes in the United States, according to U.S. Census Bureau data, and interest is growing.


Be sure the vacation home you buy is something you'll love today and after you retire.

"With older baby boomers just now reaching 60 years of age, and younger boomers in their early 40s, the lifestyle preference of boomers will figure prominently into future demand for vacation homes," says David Lereah, chief economist with the National Association of Realtor (NAR).

What are the characteristics of the typical vacation-home owner? According to NAR's 2006 Investment and Vacation Home Buyers Survey, they're about 44 years old, with a median household income of $102,200 a year. Further, according to a separate NAR survey:

  • 78 percent of vacation-home owners are married couples

  • Eight out of 10 drive to their vacation home

  • They typically spend 39 nights a year at their vacation home

  • 82 percent own their properties fully (mortgages have either been paid off or the home was purchased in cash)

The typical vacation home in the United States cost about $200,000. When buying one, home-hunters look for a vacation home close to:

  • An ocean, river or lake (two-thirds of survey respondents)

  • Recreational or sporting activities (39 percent)

  • Vacation or resort areas (38 percent)

  • Mountains or other natural attractions (31 percent)

Are You Ready for a Vacation Home?

If you don't fit into the above description (say you're 55 years old and earn $85,000), can you still buy a vacation home? Of course! But there are some things to consider before you do.

  1. Can you afford it? Consider not only the cost of the home but also insurance (it's costly to insure desirable coastal properties), property taxes, utilities and maintenance costs to keep up the home. (And then there's the furniture ... )

  2. Do you have time to spend there? Americans are notorious for not using their vacation time (and even free weekends are becoming a luxury). Will you really use your vacation home to make the purchase worthwhile?

buying a vacation home

A vacation home away from the hustle and bustle of city life may sound appealing ... but have you considered how long it will take you to get there, and whether you'll have access to grocery stores and, in case of an emergency, health care?

  1. How will it affect your taxes? Mortgage interest and property taxes on a second home can be deducted, according to the National Association of Tax Professionals (NATP). But, if you decide to rent out your home when you're not using it (for more than 15 days) your rental receipts must be reported as income. Also, if you sell your vacation home, the profits will be taxed as a capital gain.

You're Ready ... But There's More Vacation-Home Quandaries to Consider

Determining that you are, indeed, ready to buy a vacation home brings up a new set of careful considerations that must be made. To make sure that your vacation home is the cozy retreat (or the urban getaway) you've always wanted, here are some top tips to consider.

  1. Where should you buy? After you've considered your interests (Do you want a beach house? A farm house in the country? A log cabin in the wilderness?), realize that you're going to want something relatively close to home (not more than a two- or three-hour drive if you plan to use it on the weekends). Otherwise, you're not going to want to visit it as often.

    Also take into account your future intentions for the home. If you're going to rent it out, will it appeal to renters? If you're going to live there after retirement, will it still be convenient and close enough to a grocery store, etc.?

    Finally, think about the year-round climate in the area (if you intend to use the home all year) as well as access to health care. No one wants to get stuck out in the wilderness with a broken leg and a five-hour drive to a hospital.

  2. What kind of home? Next think about what you plan to do in your home. If it will be just you and your spouse, a smaller place should do. But what about grandkids down the road and family who will inevitably want to visit? Is there room for them?

  3. Should you buy with a friend or relative? Gathering a couple of relatives or close friends is a tempting way to buy a vacation home. The home gets more use, and you get to split all of the costs. If you do opt to go this route, make sure to put your emotions aside and draft a contract that spells out who gets to use the home when (otherwise you run the risk of Uncle Bob crashing your anniversary weekend), who's responsible for which repairs (or will you split them?), and what will happen if one person wants to sell.

    Above all else, keep in mind that a vacation home should be something that helps you to relax and escape the daily grind. If it ends up bringing you more headaches and worry, then the vacation home is not doing its job.

Recommended Reading

Which Home Renovations are Your Best Investments?

15 Keys to Protect Your Home When You are on Vacation


National Association of Realtors April 30, 2007

National Association of Realtors May 11, 2006 Vacation House Hunters

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