Key takeaways:
- A vacation home costs more than the purchase price—budget for taxes, insurance, upkeep, and travel.
- Pick a location you’ll actually enjoy that also has long-term resale potential.
- While rental income and tax perks are possible, vacation homes also bring added risks and responsibilities.
Looking to buy a vacation home in Dewey Beach, DE, a ski chalet in Colorado, or a family house in Frisco, CO? A second home can give you a reliable getaway and a place to make lasting memories. But as exciting as it sounds, buying a vacation house comes with extra costs, upkeep, and planning. This guide will help you decide if you’re ready to take that step.
What does buying a vacation house really mean?
A vacation house is different from your primary residence, it’s a second property used for leisure rather than everyday living. Unlike an investment property, which is purchased mainly to generate income, a vacation home is often bought for personal enjoyment first, with rental income as a possible bonus.
People buy these homes for different reasons: some want a personal retreat to escape to on weekends, others see it as a way to host family gatherings or rent it out when not in use. For many, it’s also a long-term plan, eventually becoming a retirement home in a favorite location.
>> Read: Top 10 U.S. Towns Where Vacation Homes Dominate The Market
1. Financial considerations before buying a vacation house
Before buying a vacation house, it’s important to look beyond the listing price and understand the true costs of ownership. Here are the main expenses to keep in mind:
- Down payment and financing: Lenders often see vacation homes as riskier than primary residences, so they often require a larger down payment, commonly 10-20% or more. Interest rates can also be slightly higher, which affects your monthly payment.
- Ongoing costs: Property taxes, homeowners insurance, utilities, and HOA fees can be steeper in popular vacation spots. Some areas also require special coverage, like flood or hurricane insurance, which adds to the expense.
- Maintenance and repairs: Even when you’re not there, the property still needs attention. Think cleaning, landscaping, routine upkeep, and the occasional unexpected repair. Hiring a property manager can help but increases the cost.
- Travel expenses: Getting to and from your vacation home isn’t free. Whether you’re driving or flying, transportation costs add up over time and should be part of your budget.
2. Location considerations
Where you buy matters just as much as what you buy. The right location can make your vacation home enjoyable now and a smart investment later. Key factors to think about include:
- Accessibility and amenities: Choose a spot that’s easy to reach and has the features you’ll actually use: beaches, ski slopes, restaurants, or shopping. A home that feels too remote may be harder to enjoy regularly.
- Travel convenience: If you plan to visit often, look at proximity to airports, highways, or major transit options. Long or complicated travel routes can make your getaway less appealing over time.
- Resale and market trends: A vacation house is still real estate, so check local property values and market demand. Buying in a stable or growing area may help improve the likelihood your home will hold value if you decide to sell.
3. Lifestyle considerations
A vacation house should fit your lifestyle, not complicate it. Before committing, think about how it will realistically be used.
- Frequency of visits: Be honest about how often you’ll go. A property that only gets used a few weekends a year may not justify the cost.
- Spontaneity vs. planning: Vacation homes can make getaways easier, but they also tie you to one location. Ask yourself if you’d prefer flexibility to explore new places instead.
- Ownership vs. renting: Renting vacation homes might be cheaper and more versatile. Weigh whether long-term ownership offers enough value compared to booking rentals as you go.
4. Rental considerations
Many buyers offset costs by Airbnbing or renting out their vacation home, but it comes with trade-offs.
- Pros: Rental income can help cover the mortgage, taxes, and upkeep. In busy markets, it may even generate profit.
- Cons: Frequent tenants mean more wear and tear, and some cities limit or regulate short-term rentals.
- Management options: You can self-manage bookings and maintenance or hire a property manager. Outsourcing saves time but cuts into earnings.
5. Risks involved with buying vacation homes
Owning a second home brings unique risks, especially when it sits empty.
- Vacancy concerns: Homes left unoccupied for long periods are more vulnerable to storms, theft, or unnoticed damage.
- Insurance requirements: Second homes often need additional coverage, like flood or hurricane insurance, which increases costs.
- Seasonal upkeep: Snow removal, landscaping, or storm prep may be needed even when you’re not around, requiring extra coordination and expense.
6. Potential tax implications while owning a vacation house
Taxes on vacation homes depend on how you use the property. If you rent it out for more than 14 days a year and personally use it for less than either 14 days or 10% of the total rental days, the IRS considers it a rental property. In that case, the rent you collect counts as taxable income.
The upside is that you you may be eligible to deduct many of the costs of owning and operating the home – such as property taxes, insurance, mortgage interest, maintenance, and management fees – depending on your situation and current IRS rules. These deductions can help offset what you owe on the rental income.
Because the rules can get complicated, it’s best to talk with a tax professional before you buy. They can help you understand what to expect and how to structure your use of the property so you don’t run into surprises later.
7. Potential tax breaks owning a vacation house
Owning a vacation house may come with some tax benefits, depending on how you use the property.
- Property taxes: You can deduct property taxes on a second home, though the deduction is capped at $10,000 per tax return (or $5,000 if married and filing separately).
- Mortgage interest (personal use): If the vacation house is treated as a second residence, you may be able to deduct mortgage interest on loans up to $750,000 in total qualified residence loans ($375,000 if married filing separately).
- Mortgage interest (rental use): If the home is rented out for more than 14 days per year and meets IRS rental property rules, you may be able to deduct mortgage interest, insurance, and property taxes against rental income.
You can’t claim both personal and rental deductions at the same time, so it’s important to be clear on how you’re using the property. Tax laws are complex and frequently change. Always check the latest IRS guidance or speak with a qualified tax professional for advice specific to your situation.
8. Are you ready to buy a vacation home?
Not everyone is prepared for the responsibilities of a vacation home. Here’s how to know if you are.
- Financial stability: You should have strong savings, a solid emergency fund, and the ability to cover both homes comfortably.
- Purpose of use: Decide if the property is mainly for personal getaways, rental income, or long-term retirement plans.
- Responsibility level: Consider whether you’re willing to handle maintenance and management, or if you’ll need to hire help.
- Future vision: Think long-term. A vacation house can be a family retreat, a retirement plan, or a legacy property, but it requires commitment.
Alternatives to buying a vacation house
If you’re not sure full ownership is right for you, there are other ways to enjoy a getaway home without the same level of commitment.
- Vacation rentals or timeshares: Renting short-term or buying a timeshare lets you enjoy a property without long-term costs, upkeep, or risk.
- Fractional ownership or co-buying: Sharing ownership with family or friends reduces expenses but requires clear agreements on scheduling and responsibilities.
- Test-driving locations: Before buying, spend extended time in your preferred area. Renting for a season can help confirm whether it’s the right fit.
Exploring these options first may save money and help you make a more confident decision when or if you’re ready to buy.
The bottom line: Is a vacation house right for you?
Buying a vacation house means balancing costs, upkeep, and lifestyle. If you’re financially ready and clear on your plans, it can be a rewarding investment in memories and future value. If not, renting or fractional ownership may be the smarter choice.
The post Are You Ready to Buy A Vacation Home? 8 Things to Consider Before Buying A Vacation House appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.
