I think we can all agree that a vacation is in order right about now. Wouldn’t it be amazing to have your own little place, tucked away at a lake, by the ocean, or in the mountains? A place to get away from the world and the craziness we’ve all been living.
If you’re thinking of buying a vacation home – in Southern Maryland or elsewhere – there area few things you should know and probably run by your financial planner.
Can your budget handle two mortgages?
Unless you’re lucky enough to be considered wealthy, making two mortgage payments each month may be challenging.
But before you let the dream of owning a Southern Maryland vacation home carry you away, you must keep this in mind. Make sure you can make those two payments and still live comfortably.
PNC Investments senior vice president Jay Mastilak suggests that “[t]he basic rule of thumb is that your housing costs – including those for your primary home – should be a third of your overall income.”
Housing costs, as we all know, include more than a mortgage payment. Take a look at the others costs to to consider when thinking about buying a vacation home.
Upfront costs to consider
Remember when you bought your current Southern Maryland home? You paid a lot of lender fees, which you might not remember. Here’s a short list of the most common:
- Recording fees
- Loan origination fees
- Credit report fee
- Title insurance premium
- Private mortgage insurance
- Points
- Homeowners’ insurance
- Escrow deposits
- Miscellaneous fees
Naturally, if you pay cash for your vacation home, you’ll avoid all of these fees.
Ongoing expenses to consider
In addition to your mortgage payment, consider these additional ongoing fees:
- Insurance coverage for anything not included in your homeowners’ insurance, such as flood coverage
- HOA fees if the home is located in a managed community
- The cost of maintaining the home
- Utilities
- Security, if you won’t be renting out the home in the off-season
- The cost of travel to the home
Remember that older homes and those that are larger than normal will most likely have higher maintenance fees than newer, smaller homes.
Will you rent it out?
One way to help pay all of these costs is to rent the home out while you’re not using it. A part of the rental income may be subject to federal and state income tax, so you’ll want to run this by your accountant before making a decision.
You’ll also want to take into account that the home will experience more wear and tear if it’s lived in for a good portion of the year. And, if you’ll be hiring a management company to help locate tenants and collect the rent, there will be a fee involved for their services.
Your accountant can help you calculate how long you’ll need to rent out the home to cover the costs of owning it.
“If your monthly mortgage payment is less than or equal to one peak week rental, and you rent approximately 17 weeks per year, you should have break-even cash flow on your vacation home,” says Christine Hrib Karpinski, author of “How to Rent Vacation Properties by Owner.”
Again, we aren’t accountants or financial professionals, so run this by yours when making the decision as to whether or not you can swing buying a vacation home.
Lexington Park MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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