Chances are that you have dreamed about owning a vacation home for quite some time and you are not alone. Believe it or not, vacation home sales rose to 7.9%, with the median price of a vacation home being $169,000.
With all the available options, deciding where to buy a vacation home is overwhelming. Start with an area that you are familiar with and frequent often.
Decide if you are interested in a vacation condo on the beach or a log cabin in the mountains. Both types of properties offer on-site amenities and year-round income, but it is best to narrow down the type of property and geographic market before you begin your search.
A beachfront rental performs best in the state of Florida. Florida’s tropical climate allows year-round use of a vacation property.
In the winter months of December, January, February, and March offer premium vacation rental rates. A typical two-bedroom beachfront rental with ocean views that costs about $240,000 can easily command a minimum of $3,000 per month.
In addition, these beachfront rental condos offer a slew of amenities like on-site gyms, heated pools, and even on-site home theaters. The key to purchasing a beachfront rental condo is the proximity to the beach.
The closer the vacation property is to the beach the more expensive it is. It is best to locate a beachfront rental property with ocean views which would bring in the most rental income.
Although many markets in the United States provide beautiful vacation condos, many have limited vacation rental opportunities. For example, the beachfront rentals are popular on the Jersey shore, but only rent during the short summer months.
This limits the vacation rental income opportunity. If you prefer log cabins, consider markets like Pigeon Forge Tennessee, Lake Tahoe California, and the Poconos in Pennsylvania.
These markets offer a variety of activities nearby, but still provide a remote mountain retreat. The Poconos offers white water rafting and horseback riding and it is only two hours from New York City.
Pigeon Forge not only offers views of the Smoky Mountains, but it also offers Dollywood, a popular theme park in the area. The closer the cabin is to Dollywood the more expensive it will be, as this is a major tourist attraction in the area.
Cabin vacation rentals are shorter than most beachfront rentals and tend to last for a weekend and up to a week at a time. Whether you are buying a beachfront rental or a vacation cabin in the mountains always ask about possible rental restrictions.
It is best to buy vacation properties that have no rental restrictions. Banks classify vacation properties based on the distance the vacation property is from your primary residence.
Properties located within 40 miles and under are classified as investment properties regardless of whether they are located in a resort or not. Banks also consider potential rental income. If the property is rented for more than fourteen days a year, the banks consider the vacation property an investment property.
Investment properties loans offer higher mortgage rates. Many banks charge up to a half of a percentage of interest or higher because of the added risk that the loans pose.
Financing options for buying a vacation rental include a traditional fixed-rate mortgage for 30 or 15 years, as well as a hybrid mortgage which provides a fixed interest rate for the first few introductory years and then mortgage goes to a variable rate. An adjustable rate mortgage otherwise known as an ARM also provides financing options bearing an interest only mortgage that offers substantially lower mortgage payments but does not apply payments toward the principal of the mortgage.
These mortgages charge closing costs to process, but obtaining a home equity line of credit does not. A home equity line of credit allows a buyer to pull out existing equity from a primary residence in order to place a down payment or even finance another vacation property entirely.
This method of financing can also be used if the bank does not offer financing for a particular vacation property due the high number of defaults in a building. A home equity line of credit works as an interest only loan, but usually offers a competitive interest rate with lower monthly payments and shorter payback time.
Most home equity lines of credit can be renewed at the end of the loan if necessary. Bank rate offers a list of national mortgage rates as well as rates on home equity lines of credit from leading banks.
As you can see, buying a vacation home is not only entirely possible, it can even be an investment! Start looking for your dream vacation home today!
Tom Selwick is a resident of Utah and has written hundreds of articles relating to tourism and real estate. He recommends (http://www.parksedgeparkcity.com) for your next home in Park City.
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