A vacation property is not a necessity; it’s just something that’s nice to have. Actually, it’s something really nice to have. However, the chances are that you would be better off renting, which would potentially allow for more flexibility. However, there are some questions to ask before buying a vacation property.
With that in mind, there isn’t any reason why a vacation property can’t be a good long-term investment. The catch is that in order to cash in on that investment, you must rent it out, sell it, or retire there. It is crucial to know ahead of time exactly what you plan to use the vacation property for prior to making a purchase. Are you really buying a vacation property for the lifestyle, or are you simply buying an investment property to make money?
You'll also want to make absolutely sure that your vacation property isn’t a hassle to manage. The more properties that you own, the more issues you will have to deal with. Remember, you can only live in one place at a time. Finally, consider the exchange rate from CAN to USD right now. If your dream vacation property is in Florida, you may want to consider holding off until the Canadian dollar is a little bit stronger.
Below you will find a list of four questions to ask yourself before you buy a vacation home:
- Can you rent the property out? Rental income is a great way to support the ongoing cost of owning a vacation property during the many weeks a year that you will likely not be there. There are services and vacation management companies available that can help you earn income. Tax laws even allow you to rent out your vacation home for several days a year without paying taxes on the rental income generated from those days. You might be able to deduct any uninsured casualty losses too, within limits, though you can’t write them off.
- How often will you use the property? Most workers average 3-6 weeks of vacation a year, excluding those who are able to work from home. Do you really want to spend all your vacation days at one place? Or would you like to visit different parts of the world instead? It could be difficult to spend as much time as you’d like at one specific vacation property depending on your schedule.
- What are your other options? Before buying a vacation property, compare what other properties you could rent for the same cost of owning your property. Owning property will include property taxes, maintenance costs, time, effort, insurance, and a mortgage if you do not pay cash. You’ll also have to pay homeowner’s dues if you purchase a timeshare or condo. Make a realistic assessment of the number of days of planned usage and divide by the annual cost of ownership to come up with a rental cost per night.
- Can you see yourself retiring in it? One ideal scenario is buying a retirement property long before you actually retire. If you absolutely know where you want to retire and have the financial means to afford a vacation property, then buying a retirement property decades in advance might not only bring tremendous capital appreciation, but also a place where you’ll have already paid down your mortgage. The difficulty is predicting your tastes in the future.