If you have a favorite resort area, you probably have been wondering for quite some time whether you should go ahead and purchase a property there, rather than continuing to pay rent. 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.
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.
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.
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.
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.
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.
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.
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.
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.