By Harvey S. Jacobs July 25, 2014
Consider how often you will visit, and don’t forget about year-round maintenance costs
With the summer vacation season here, folks are spending halcyon days lounging at the beach or cooling off at a mountain cabin – dreams of buying in to that lifestyle are inevitable.
But before you succumb to that temptation, there are a few things you need to carefully examine. In many respects, buying a vacation home is different from buying your principal residence. Here are some issues to consider:
- Do not make the vacation-home purchase decision based simply on a one- or two-week vacation. Make several visits to that vacation spot at different points during the year. Do a reality check on the travel time and costs.
- If you live in the District and have your heart set on that lovely summer cottage in Maine, how often will you really be able to make the flight or drive to enjoy that home? If you believe that you are going to visit your vacation home only for a week or two during the season and that it will be vacant the rest of the time, you might be better off continuing to rent.
- Once you buy, you are paying expenses for a full year but perhaps enjoying the place for just a few weeks. These expenses might include taxes, condominium or homeowners’ association fees, recreation fees, ground leases and utility bills for water, sewerage, gas, electricity and cable for the whole year.
- Factor in the vacation home’s higher repair and maintenance costs when compared with your principal residence. For example, oceanfront homes are pummeled by salt, sand and wind year-round. You can expect to have to paint your oceanfront home’s exterior more often. Similarly, roofing, decking and replacement of windows are costs that you will incur more frequently with an oceanfront home. Even minor items such as storm-and-screen doors, hinges, locks, railings and other metal items that are exposed to salt air will require extra vigilance for maintenance, repair or replacement.
- Determine whether homeowner’s and flood insurance is available, and at what cost. If you are close to the water or in a flood plain, insurance companies might elect not to offer coverage. If they can be persuaded to do so, your insurance premiums will be far higher than they are for your inland principal residence. In tropical climates, hurricane insurance, hurricane shutters and hurricane-proof windows are additional mandatory costs.
- Inquire about whether your mortgage lender is qualified to lend money in the state where your vacation home is located, since not all lenders are able to make loans in every state. The good news is that lenders view vacation homes the same as principal residences for mortgage underwriting purposes, so long as they are not rented out, said Todd LaBorwit, president of Topaz Mortgage in Rockville. Lenders do not generally require larger down payments for vacation home purchases, he added. Vacation homes do need to qualify as second homes for lending purposes. To qualify as a second home, the property must be a certain distance from your primary residence, and/or in a resort or recreational area, LaBorwit said.
- Examine the legal and tax consequences if you intend to rent out your vacation home to cover some costs. Make sure that your condo or homeowners’ association covenants, conditions and restrictions permit such rentals. These legal documents might restrict how many times per year you can rent out your home.
There might be limits on the number of people and/or pets that can occupy your rental unit. Sometimes there are surcharges if renters use amenities such as the beach, pools, tennis courts, golf courses, boating equipment or parking spaces. Generally, if you rent your vacation home for more than 14 days a year, your rental income and certain deductible housing costs are to be reflected on your tax return.
- Use an attorney familiar with the area to handle your settlement. Vacation properties often have local rules, regulations, licensing and customs.
If you take the time to analyze the vacation home’s additional costs and the steps required when buying, you probably can prevent your dream vacation home from becoming a nightmare.
Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates Attorneys at Law in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Jacobs at (301) 417-4144, jacobs@jacobs-associates.com or ask@thehouselawyer.com.