Ever dreamed of buying a vacation home? Here’s how to ensure that your investment is a wise one

Story by Kate Verotsky
A native of Houston, Martha Hendrick is the best kind of Pacific Northwest transplant. She’s been here for more than 25 years, and she still loves everything about the area. “Ya’ll kept this beautiful place a secret for far too long,” she laughs. A real estate broker with properties available in Sun River, coastal Washington’s Ilwaco and California cattle country, Hendrick lives in Vancouver and also owns a vacation home near Bend. Who better to quiz about the ins and outs of vacation home buying than she, who has been both buyer and seller?

If you already enjoy frequent weekend getaways to a specific place, perhaps you’ve wondered about the costs and benefits of buying in the area. How do you know if it’s possible, and more importantly – how do you ensure that the investment is a wise one?

The dollars and sense
“Buying a vacation home is not unlike buying a primary home, but there are some additional factors that you need to consider,” Hendrick says. First, there are tax advantages and there are consequences. Most buyers are not going to be living in the home year round – at least not right away – which obviously makes for a different financial landscape from that of a primary home. She recommends researching a tax program called the 1031 exchange, in which taxes are not eliminated but they can sometimes be deferred.

On the subject of partial occupancy, Hendrick has a gentle reality check. Most buyers do rent the property out when they aren’t using it, but very rarely does the rental income cover the cost of ownership. “I’ve had a lot of people think that they can get a mortgage on a property and then rent it out– no cost to them and a free vacation. Well, we can wish and we can dream, but that’s just not realistic,” she says.

The reality is that although you will probably offset your cost at least partially by renting the property; don’t expect it to pay for itself. Buyers also need to research the rules and regulations regarding rentals. According to Hendrick, many communities have rules against nightly rentals, and some require leases of at least 30 days duration.

Finally, make room in your budget for any incidental repairs that may be needed as a result of renting the property. “If you get somebody in that doesn’t take as good of care of your property as you would, then you have consider whether the offsetting of your cost by renting was worth any refurbishment that you need to do such as painting, furniture or wear and tear of carpet,” says Hendrick.

Costs of Ownership
The truth is, though vacation homes are infinitely rewarding for most owners, there’s a lot more to property ownership than mortgage payments and taxes. Consider homeowner fees, for instance. Though they are a great convenience to many absentee owners, buyers should examine the fees carefully. “Don’t just ask what the fees are, but find out what they cover,” advises Hendrick. Do they pay for exterior painting every few years? What about roof maintenance? Landscaping? Many vacation homebuyers will need to hire a management company to attend to details not covered by the homeowner dues such as ensuring that the heat is on and that the pipes don’t freeze in the winter.

Also, buyers should factor in the costs of membership for certain amenities that the community offers. “If you buy a house on a golf course, don’t assume that you can go out your backyard to hole 13 and play through,” says Hendrick. “That’s a private golf course, and you had better find out what the costs are because that’s going to impact the bottom line of what you’re going to spend on the house.”

Location, location, location
This is the real doozie decision – where to buy? There are several factors to consider here. The first is distance. How far is too far, or perhaps more to the point --- how far is too close? “It all depends on your purpose,” Hendrick replies. “If somebody intends to use their vacation home as a restful retreat place once a month, or once every six weeks – I would suggest not going more than a two or three hour drive out of the city. Once you get into four and five hours, then it’s no longer an overnight or a weekend jaunt.”
On the other hand, other buyers consider great distance to be the whole point of a “getaway.” “Some people want to be far enough away that it just isn’t possible to get back for a meeting,” says Hendrick.

Next, consider the community’s resources, particularly if you plan to live at the property full time at some point in the future, such as during your retirement years. Are there family-friendly activities? Plenty of restaurants and cultural opportunities? An important consideration that many buyers tend to overlook with vacation property is convenient access to healthcare. This can become a concern particularly to retirees or families with small children.

Just as important as the recreational amenities, the future of the area is a vital consideration. Hendrick urges potential buyers to research the area as thoroughly as possible. She’s seen all too many buyers get excited about stunning views from their front windows, only to discover that a developer owns the neighboring property and is planning to start constructing high rise condominiums on it. “One of the questions that I always encourage buyers to ask is where the area is going. If you’re looking at a model home that’s in phase one of development, what is planned for phases two, three and four? How many more vacation homes are planned? You’re going to want to see the entire plan map, because this will affect your roads, your land and your view.”

Another oft-overlooked issue, according to Hendrick, is water. Is the property on the city water system, or are there extra fees for a privately owned well? If the supply is privately owned, is it adequate to accommodate any planned growth in the area?

Have an Exit Strategy
When purchasing property in a vacation area, or purchasing anything for that matter, it is always wise to have an exit plan. If at some point in the future you decide to sell, will the investment pay off? Hendrick suggests thinking about the specific appeal of this area. Find out about the resale value and volume of other vacation homes. If possible, try to buy in a yet-undiscovered area.

“No one has a crystal ball, and markets can change, but ask yourself if this is considered a popular resort area, or if you have chosen something to fit only your specific needs,” Hendrick says. If a remote cabin in the woods is your idea of Utopia, consider that it may not be as marketable to the masses as a gated community with beach access and golf course.

So…to buy or not to buy?
Though many vacationers cringe at the thought of “throwing money away” on a rental, that may be the best bet for some, depending, once again, on your intentions and lifestyle. Consider your own personality. Do you enjoy familiar places, or are you more of an adventurous type? If you envision a family tradition of summers at a cozy beach cottage with the dream of retiring there full time when circumstances allow, then buying may be the right choice. However, for those that enjoy vacationing in new places every year – spending the whole vacation budget on one location may be a decision later regretted.

“I suggest testing the waters,” says Hendrick. “Rent a place there. If its not exactly what you envisioned it to be then yes, you’ve spent some money vacationing, but you’ve not put all of your eggs in one basket with a mortgage and fees and tied yourself down to something that did not exceed your expectations.”

Most importantly, take your time. Most buyers visit a location several times before committing to purchase. “Ask more questions than you think you should,” Hendrick stresses. “Don’t just look at one development, look at the entire area. Look at the shopping, look at the restaurants. Walk down the streets. Ask people how long they’ve been there and if they like it. That is the best research you can do – take someone for a coffee and ask about it.” Hendrick also suggests exploring the wealth of information provided by the Chamber of Commerce and local Visitor Bureau.

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By investing your time in front end research, you can rest assured that if and when you decide to purchase a vacation home, you’ll have made a wise investment in both your pocketbook and your future.

Resources
Martha Hendrick, CRS,CRP,ABR
(541) 815-8300
email: Martha@hendrick.com
www.hendrick.com
www.coastalridge.com