Smart Buying
Your Vacation-Home Checklist
These nine tips can help buyers keep expenses under control.
From Kiplinger's Personal Finance magazine, August 2004
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Whether you rent out your second home or just use it as a private Shangri-La, you'll undoubtedly encounter unexpected expenses.
Be prepared to pony up. Even though interest rates remain historically low, lenders usually demand a down payment of at least 20%. Many agents suggest putting down as much as 35% to give yourself a greater cushion.
Look around. Shop for financing with local banks where your primary house is located, where the vacation place is located and with online lenders such as E-Loan and LoanWeb. But expect to pay as much as a percentage point more for a second home than you would for a primary one. Consider an equity loan on your primary house, or see if the seller will offer owner financing.
Check insurance rates. Insurers usually charge as much as 20% more for vacation-home coverage, whether you use the house or someone else does. If the place is located on a flood plain, in a hurricane zone or in an area prone to other natural disasters, you may have trouble getting insurance at all.
Factor in advertising. If you rent your property, you're going to have to advertise -- typically at $100 or more for a classified in your local paper, or on a Web site such as www.vrbo.com ($148 for a year's listing, including three pictures) or www.cyberrentals.com ($135 for a year, with three pictures).
Check out property managers. Some managers charge almost half of the gross rent to screen tenants, market your unit and keep it in good shape. But you don't always get what you pay for. Small firms are sometimes overextended; big ones may leave potential tenants stuck on hold forever during busy booking times. Talk to other owners in the area before you commit, and check the Better Business Bureau and other local consumer agencies. Also, do an Internet search, entering the company's name and the word complaints.
Expect renters to dicker. Because more people are renting out their vacation homes than ever before, expect competition. You may need to match incentives, such as beach passes, airport transportation, and the use of a golf cart or car.
Give kids something to do. Of course you'll need furniture, but many people forget to budget a few hundred dollars to keep toys and other amusements in stock, from board and video games to boogie boards, bicycles and books. Property managers say that tenants now expect a TV and DVD player in every bedroom.
Keep up appearances. Just having a spectacular view of the ocean doesn't cut it anymore with renters; they expect the interior of your vacation getaway to be fabulous, too. They're especially interested in up-to-date kitchens; many even ask for granite countertops and stainless-steel appliances before they ask about the distance to the beach. You should expect to budget at least a few thousand dollars for remodeling if your unit isn't brand-new.
Consider safety. In a relaxed mode, people sometimes are more careless on vacation than they would be at home. Property managers suggest replacing charcoal grills, which can throw off sparks and set decks on fire, with propane models; installing extra lighting on porches and stairs; and putting baby gates on stairs if families with children are likely to visit. But because accidents can occur even when you take precautions, consider getting a personal liability rider on your insurance for at least $1 million.