Will you find a renter in the off-season? Will you have a property manager maintain it when you're not around? These are just a few of the questions that you should ask yourself.
Before you start shopping for a second home, take the following into consideration.
What are the tax implications? Second homes and rental properties often have different tax implications, depending on your state. Be sure to look into how you will be taxed before falling in love with a property.
Can you afford all the expenses, including utilities? Will you be able to afford repairs, maintenance, insurance and utilities? Go beyond the monthly mortgage and make sure you think through every hidden cost.
Are you in a high-risk area? If your vacation home is near water, it could be at risk for flooding or hurricane damage, depending on location and weather temperament. Keep potential hazards in mind when figuring out how much of your nest egg you plan to sink into your vacation home.
Have you considered the off-season? What will you do with the property when you’re not in it? Will the house sit empty? Will you share it with family or friends? Will you rent it out on a rental website?
If renting, do you need a property manager? If you plan to rent your home for more than 14 days a year, it's considered a business, and profits need to be reported to the IRS. Who will manage the ins and outs of your business? Will you hire a property manager?
Do you NEED to rent your second home? Don’t just assume that you'll have a steady rental business from the get-go. It can take months to build up bookings, and rental demand will fluctuate throughout the season. If you need that income right away, you may be creating financial stress for yourself.
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