If you often vacation at a favorite resort area, you might wonder whether it might make sense to stop paying rent for your accommodations, and instead purchase your own home in the area. To determine whether buying or renting a resort home is a smart way to use your money, you’ll need to think about a number of factors including expenses, common problems, and your personality. You’ll also have to compare how much you’d pay for home rentals each year with the yearly expenses of owning a home.
Calculating the costs of a rental home is pretty easy. The main cost is, of course, the nightly (or weekly) rental rate. Rental rates typically vary depending on the property’s quality, size, and location, which resort you are visiting, and the time of year at which you visit. For example, renting a luxury slope-side condominium at a ski resort during the holidays will cost a bundle. If you anticipate spending a lot of time at the resort, the rental costs can really add up. You must assess how much time you will realistically visit each year. Additionally, you must account for the fact that rental rates are typically always on the rise due to inflation. Don’t forget to also factor in other expenses such as cleaning fees or repairs.
The Cost of Resort Home Ownership: You must determine the amount of mortgage interest you will pay each year, as well as tax costs or savings and any additional expenses. You must also weigh the home’s appreciation potential against other investments.
Mortgage and Tax Issues With Owning a Resort Home: Prices for homes in resort areas are typically steep, and most people must obtain some type of mortgage to finance a second home in a resort. Mortgage interest rates and mortgage interest deductions for a second home are not necessarily the same as for a primary residence. Sometimes lenders will classify a second home an “investment property” and charge higher mortgage rates. Additionally, the interest on a mortgage for a second home is not always allowed as an income tax deduction.Tax issues also arise when you sell a second home; if you do, you must pay capital gains taxes on all appreciation.
Opportunity Costs of Tying Up Your Money in a Resort Home: Another consideration with owning a home in a resort is the potential for property appreciation or loss. Although real estate can produce nice gains, it’s a risky investment overall, and could easily result in a loss. Before you buy, talk to a real estate professional in the area, and do some research to get a general idea of whether the resort home you are hoping to buy is likely to appreciate, and if so, by how much.
Secondary Resort-Home Costs: Owning a second home also means a second set of home-related expenses. Just as with your primary residence, you will need to pay annual real estate taxes, utilities, and ongoing maintenance expenses for the second home. If you do not visit your resort home regularly, you might need hire an on-site manager to keep an eye on the property, and to take care of required maintenance. For example, you might need someone local to take care of the landscaping, shovel out the sidewalks and drives, or repair damage from storms.
You might recoup some expenses by renting the home out when you’re not visiting. During peak seasons in a resort area, renting out a home is typically not a problem. However, unless you have the time to arrange rentals on your own, you’ll likely need to pay a portion of the rental rate to a real estate agent or rental agency to coordinate this. If the rental period is short term, you might also need to hire a housecleaner to clean up between renters. Additionally, finding renters during the off-seasons in a resort might prove difficult.
Non-Financial Considerations With Renting Versus Owning a Resort Home
In order to determine whether it’s wisest to rent or buy, you must also consider a number of other differences between renting and owning a resort home. With a rental home, you might find that your favorite home or condominium unit isn’t always available when you want it. And you might be less than thrilled with your alternative rental accommodations once you arrive. These issues can be avoided if you own your own home. You can furnish and stock the place to your tastes and will know just what to expect each time you visit.
Look at the Whole Picture Before Buying a Resort Home
Before deciding whether to rent or buy in a resort area, you must assess all of the considerations above. In the end, however, only you can determine which choice would give you the most satisfaction. If money isn’t your first concern, and you just want a place of your own as a retreat, buying that dream home in a resort might be the way to go.