A vacation home can be a good idea for your retirement years, a source of relaxation and second income, and a smart investment. However, many people make mistakes when purchasing a vacation home and end up with a home that isn't right for them. Learn what to do and what not to do when second home shopping.
Common mistakes
If your friends have vacation homes in a certain area, it's naturally tempting to look there. Before you rush, ask yourself if their vacation town is right for you. If you really feel it's a good match, go ahead and shop there. However, if you're not sold on the town, brainstorm where would feel right to you and look there.
Develop a budget before you begin shopping, and stick to your budget. A second home does you no good if you cannot pay the mortgage. Even if you're hoping for rental income from the second home, ensure that you can meet the mortgage payment during slow months by purchasing within your budget.
Finally, if you're looking at second home communities, take real stock of their amenities. If you play tennis, a communal tennis court can be tempting. If you don't play tennis, it's unlikely that you'll take it up just because there is a court available.
Don't expect to cash out quickly: If you are not sure whether you can hold on to the vacation house for at least five years, hold off on purchasing. Unlike stock, you cannot sell real estate quickly. Vacation areas are particularly susceptible to market downturns.
Finding the right home for you
After you've identified your budget, brainstorm several target areas. Perhaps you want to escape to the beach or the mountains. Compare the appreciation rates of several different beach and mountain areas near you. A vacation town with steady appreciation rates generally makes a better investment than one with low or uneven appreciation rates. Consider also the town's public safety records, amenities and things to do. Visit the area in all seasons to get a feel for what businesses remain open in the off season. You may be able to knock some areas off your list because they're too sleepy in the off season or they lack the culinary diversity you seek.
As your list of potential locations narrows, begin to house hunt. It can be easy to get sucked in by the home's styling. Look past this to gauge hidden costs, such as whether the home would need to be updated, whether you would need to replace decks or renovate the interior. If you like a house, research recent sale values of comparable homes in the area to see whether it's priced competitively. If the house is overpriced for the market but has been sitting for a while, you can try a low-ball offer; if it's been under 30 days, you probably won't have much luck with that.
A savvy real estate agent with knowledge of your target area can make the search process significantly easier, by steering you toward hidden gems and passing on local knowledge. Strongly consider working with an agent, especially if you live at a distance from your preferred area.