8 tips for house hunting on vacation
Thursday April 28, 6:00 am ET
Melody Warnick
You're on vacation.
Lounging at the pool. Reading the novel of the summer. Maybe throwing back a few Mai Tais and ... checking out the local real estate market?
That's no way to spend a vacation, many will say, but it may not be such a crazy idea.
After all, one in three residential homes purchased in 2004 was a second home, according to the National Association of Realtors. And since the average income of those buyers was a solidly middle-class $80,000, a beach condo or a mountain cabin may not be out of reach. If you think you'd like to own a piece of paradise, using your vacation to house-hunt is just a smart way to multi-task.
Unlike your "I Heart the Poconos" T-shirt, however, a second home shouldn't be an impulse buy. "There are people who come down here with the express desire to go on vacation and they go home buying a house," says Marcus Truett, a second-homes specialist with Ronald P. Bressan Real Estate in Orlando. "But there are downsides to buying like that, like people overextending themselves or believing in a lot of hype."
Instead, if you're considering buying a second home, do your homework before you ever pack your bags, then use your trip to decide if this corner of paradise is really for you. Your vacation costs won't be tax-deductible -- house-hunting expenses were ruled out as a deduction years ago -- but you'll save money by avoiding repeat visits and by making a more-educated buy.
Here are four things you should do before you leave for vacation this year, and four things to do when you're already there.
Before you go:
Figure out your motivation. Most second-home buyers want a vacation spot, an investment property, a retirement home, or some combination of all three. Before you begin to scout sites, you need to figure out your vision and consider whether home No. 2 is a realistic fit for your lifestyle. "If you think you want to get a weekend place but your kids are in soccer games every weekend, the likelihood of you actually getting out there is low," says David C. Hehman, CEO of EscapeHomes.com, an online marketplace for buyers and sellers of second homes.
Find a real estate agent. For potential home buyers, connecting with a good agent is critical. But if you wait to set an appointment with an agent until after you're already on vacation, you may be out of luck. In such popular spots as San Diego or Branson, Mo., real estate agents often hesitate to spend time with vacationers for fear that they'll only serve as glorified tour guides. "Don't get annoyed when [agents] won't drop what they're doing and take you out on a sales call blindly," says Christine Hrib Karpinski, author of "How to Rent Vacation Properties by Owner." Remember, she explains, "Thousands of other [tourists] had that same thought." To avoid hassles, begin a dialogue with a real estate agent -- preferably one who specializes in second homes -- before you leave. To find one, visit EscapesHomes.com.
Get mortgage preapproval. By doing the paperwork to get lender preapproval, you'll get your financial house in order and decide on the down payment and monthly mortgage payment you can afford. Although you may be counting on rental income to pay for a sizable chunk of your mortgage, don't get in over your head, says Truett. "It's like any other investment: Make sure you're willing to take a short-term loss in rentals."
Think about taxes. How you use your second home will determine its impact on your taxes. For instance, if you rent your vacation home, but stay in it at least two weeks a year (or more than 10 percent of the time it was rented, whichever is longer), you can deduct your mortgage interest and property taxes. An investment property or a home that's rented out and never used for personal pleasure will be subject to different deduction standards, so check with an accountant before committing.
While you're there:
Find the nearest Starbucks. Not that your dream town needs the ubiquitous coffee-monger, but you do need to get to know the area before you drop the cash for a vacation home there. While you're on vacation, scout out the hospital, the restaurants and the grocery store, too, and make sure that the place offers enough of what you love to keep your interest over the long haul. Another factor is proximity to tourist attractions. In Orlando, says Truett, a home with a 15-minute drive to Disney World can produce thousands more in rental income than a home with a 45-minute drive.
Talk to locals. You may have been vacationing in the same Berkshires hamlet since you were a kid, but you still probably have no idea what it's like off-season -- a particularly relevant point if you're hoping to rent your place. So hit up a few locals for their no-holds-barred take on the town. The local diner, a bookstore, a park or the lake make good places to strike up a conversation, or ask your real estate agent for real-people referrals.
Check out the vacation rental market. Your agent can clue you in on local home values, but perhaps more important is how well vacation properties rent, and for how much. "As long as you're in a decent tourism market, you can figure you'll get about 12 weeks of rentals, because most tourism areas have 12 peak weeks," says Hrib Karpinski. Ideally, your monthly mortgage payment will be roughly the equivalent of one peak-week rental, so with just 12 weeks of rentals you'll break even -- but the size of your mortgage and the going rate for rentals will dictate whether that's feasible. Also, those figures only work, Hrib Karpinski warns, if you rent the property yourself, contracting with your own maintenance and housekeeping staffers. If that's not in your plans, make a few calls to local property management agencies and ask about their cut. It may be up to 50 percent, with extra fees tacked onto that.
Crunch the numbers again. Visit a few on-the-market homes to see what's available in your price range, keeping in mind how you intend to use the home. For example, if you want to rent it out, granite countertops pale in importance next to a pool and hot tub. When you find something you like, think about big-picture numbers: Beyond the down payment and monthly mortgage payments, you'll need to factor in about 2 percent of the price of your home for yearly maintenance costs, such as repairs for a recalcitrant water heater, plus another $5,000 to $15,000 for furnishings. You may also find that insurance is pricier than what you're used to. For instance, hurricane insurance for a beachfront home in Florida could run up to $4,000 a year. "Do the numbers work," says Hehman. "The last thing you want to do is sweat about how much it's costing you to own this property."
Although you don't want to spend your whole vacation thinking about real estate, doing a little legwork can pay off. And if all goes well, you'll be seeing a lot more of your piece of paradise in the future.
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