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At some point in time, many Canadian homeowners have likely thought about owning another piece of property as a vacation home. But sometimes the prospect of buying a vacation home can make you feel like you need a vacation! If you’re thinking about turning your getaway daydreams into reality, there are a lot of things you’ll want to consider before you take the leap. As with any real estate transaction, the process doesn’t have to be intimidating. If you’re prepared with the proper insight, tools and budget, you can ditch the cramped hotel rooms and overpriced rentals and invest in your very own vacation home.
Benefits Of A Vacation Home
Whether you want a change of scenery for your work-from-home lifestyle, you’re looking for an affordable way to escape with the family or you want to break into the vacation rental market, there are many benefits to owning a vacation home:
If you’re looking to add assets to your financial portfolio, investing in real estate is a wise choice, especially if you’re just starting out. A vacation home can help you build wealth and equity, whether you decide to rent it out or not. If you’re able to afford the initial investment, this purchase can pay off in the long term.
Save On Vacations And Enjoy Longer Vacations
For those who travel frequently, having a home away from home means significant savings when it comes to lodging and other expenses (like cooking your own food). If choosing a location close to home is important to save on gas/airfare, be sure to factor that into your decision. Owning your own vacation home also means you can stay as long and as frequently as you like. No more calculating the cost of lodging over a certain amount of days. It’s your home so you choose the duration of your stay. If you have a larger family, owning a vacation home can save you even more money, as you’re likely paying double or triple what smaller families may pay for lodging when they travel.
Rentable For Additional Income
If you aren’t sure how often you’ll use the home, you can always keep it as a passive income stream by renting it out to other vacationers. Do keep in mind that if you purchase a home with the sole intent of renting it out, your mortgage terms will vary compared to purchasing a second home you intend to live in yourself. Be sure to ask your real estate agent for clarification on terms before you make any decisions.
Considerations Of A Vacation Home
If you’re thinking of purchasing a vacation home, there are some factors you’ll want to keep in mind before you move further. A home (and in this case a second one) is likely the biggest purchase you’ll ever make, so it’s wise to make sure you’re prepared and well versed on the details before you sign any paperwork.
Another Home To Maintain
How often will your vacation home be empty? If long periods of time will pass between visits, you’ll want to factor in things like a security system, regular maintenance of pipes to avoid freezing in the winter, outdoor maintenance in the fall, etc. Maintaining your home tends to be much easier when it’s your primary residence, but with a vacation home, you aren’t living there most of the year, so be sure not to overlook how you’ll maintain and care for the property between vacations.
Making sure you understand the total cost of the investment before moving forward is critical. You’re not just buying another home for the listing price, you’re also committing to:
- Another down payment
- An additional mortgage
- More property taxes
- Extra closing costs
- Extra utilities
- Maintenance costs
- Costs to travel to/from the property
Takes Away From Savings
Stepping back to consider the big picture is an important part in determining if buying a vacation home is a wise investment for your personal situation. If you have other important things to save for (an education fund for your kids, retirement plans, debt repayment etc.), sinking your money into another property could take away from those priorities by occupying your extra cash flow and making saving difficult.
How To Buy A Vacation Home
The process of buying a vacation home is similar to the process of buying a primary residence, you’ll just need to factor in carrying the extra costs, possibly reviewing properties from afar and how the investment will impact your personal finances/situation.
Create A Budget
Determining whether or not you can afford a vacation home is the first step to approaching the decision strategically. Creating a budget in advance will help ensure you don’t overlook any costs associated with purchasing a new property and will help you calculate how much rental income you’ll need to make the investment sustainable (if any). You may even consider discussing your plans with a financial advisor in advance to determine the best path forward based on your personal financial situation.
Qualify For A Second Mortgage
Once you have the opportunity to review your finances and determine what owning a second home would look like for you, you’ll want to make sure you meet the requirements for obtaining another mortgage. You may be required to put more money down and have a few months’ worth of reserves saved up to show that you can manage paying both mortgages responsibly should you experience a hardship. As a general rule of thumb, you’ll want to ensure you have a 10% down payment saved up for the purchase, a maximum debt-to-income ratio of 50% and a credit score of 620 or higher so you can get access to the best rates and terms as a borrower.
Find Your Home
Choosing your ideal vacation home means finding something that aligns with your lifestyle. If you currently live in the city and are craving more space and less noise, your ideal vacation home may be much different from someone who already lives in a more remote area and wants easier access to the city. If you’re not sure where to start location wise, think of places you’ve already spent time in that you’d love to revisit again and again (and again). It’s also wise to consider the home’s proximity to amenities and places you love to visit. A good real estate agent can help you find the perfect vacation home from afar, so you don’t have to worry about travelling back and forth constantly to view properties.
Buying a vacation home can be a great decision for many different reasons. Whether it’s an investment for your future or a life hack to enjoy more frequent and longer family vacations, there are plenty of benefits to owning a second home in a place you love to visit. If you’re thinking about exploring your options, make sure you’re prepared for the responsibility that comes along with owning multiple properties. If you approach the process strategically and equip yourself with the knowledge necessary to make a smart financial decision, finding your dream vacation home can be a fun experience. If you’d like to learn more about purchasing a second home or carrying an additional mortgage, get in touch with our team at Rocket Mortgage.