Crunching the numbers is a crucial first step for anyone who's thinking about buying a second home. Otherwise, that dream vacation getaway could become your worst financial nightmare. David Hehman, CEO of EscapeHomes.com, advises buyers to look beyond the sale price to calculate the true cost of ownership. Key factors include:
Financing
Hehman says mortgage companies may charge higher interest rates and/or require higher down payments for second homes, but there are creative ways to finance the deal without dipping into your child's college savings plan. It's often possible to leverage the equity in your first home, or even divert pretax funds from an IRA. Hehman adds that with the bewildering array of financing options available, it's wise to seek assistance from an experienced mortgage broker instead of dealing directly with a single lender.
Insurance
There's a flip side to the bucolic rural settings and quaint seaside communities many buyers crave: the most desirable areas may have a higher risk of natural hazards such as hurricanes, floods or forest fires, so insuring that little slice of paradise could easily leave your budget in ruins. To avoid unpleasant surprises during escrow, Hehman advises buyers to get several insurance quotes before making an offer.
Maintenance
Buyers often underestimate the cost of maintaining a home, particularly when it comes to roof jobs, exterior paint and other pesky long-term projects we all like to avoid. Hehman says a good rule of thumb is to set aside about 2 percent of the home's value each year for maintenance. For professionally managed rental properties, he says, buyers should expect the management company to pocket anywhere from 20 to 50 percent of the rental income.
More questions to ask yourself:
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main page(Morris Dye is a California-based writer and travel journalist who's still saving for his dream vacation home on a beach in southern Thailand. His work has appeared in the San Francisco Chronicle, Islands Magazine, TIME Asia, Fineliving.com and other publications.)
