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Should You Purchase A Vacation Home?

Summer has arrived, and for many families, that means getting away for a few weeks. While enjoying beautiful surroundings, warm sun or cultural enrichment, it’s easy to imagine how nice it would be to own a home that would let you do so whenever you wanted.

But don’t let your imagination run away with you. Before you snap up a beach house or a mountain cabin, give the same thought to the purchase as you would to buying your primary home.

The first question is whether you can afford a vacation home. Have you covered educational expenses for your children? Is your retirement secure? Is your emergency fund solid? Don’t rob yourself of essentials to cover a second home, no matter how great its potential as an asset. Even if you buy the property outright, you may not be able to access the equity for some time.

A second home entails more expense than you might imagine. Beyond the purchase price, you will need to consider maintenance, security or a caretaker, utilities, property taxes, furnishings, travel costs and other items. You may also need to pay association or assessment fees. And if you intend to rent your property, you will most likely need to pay for advertising, and possibly for a property manager.

Further, insurance can be a major expense. Property insurance for a second home often costs more than for a primary residence, and may be more difficult to obtain. The more the house will be vacant, the higher you can generally expect premiums to be. Insurers may also want you to pay more if you plan to rent the property. In areas where floods or hurricanes are possible, flood insurance generally must be added separately.

When considering how you will finance the home, remember that second mortgages are usually more expensive than primary mortgages, as banks tend to believe that they are assuming more risk. Lenders may look at an applicant’s income, rather than general assets, which can make approval harder for retirees or those approaching retirement. Some buyers consider taking home equity loans on their primary residences to fund second homes, but this puts your primary home at risk.

When deciding whether a vacation home is a practical purchase, estimate all these expenses to get an idea of the carrying costs for the property. If you plan to maintain the property mainly for your personal use, divide the costs by the number of days you plan to visit, so you can see whether renting a home or staying in a hotel might be sounder financially.

Some people do consider a vacation home a moneymaking vehicle, or choose to use it for both personal pleasure and to generate income. However, counting on rental income to net a profit after expenses may not always be realistic. In a high-demand locale, such as a ski resort or a desirable beach, your chances are slightly better, especially if your property is within a three-hour drive or so of a major metropolitan center. But the fact remains that, while 25 percent of vacation homeowners say they intend to rent their second homes, only 15 percent do so. Those who do so profitably form an even smaller group.

Perhaps the most important financial consideration is the tax implications of a second home. The primary factor affecting your personal tax situation for a vacation home is the property’s anticipated use. Will your second home be used only by you, your friends and your family? Is it practical to rent it to others seeking a vacation site? Specific tax rules for renting out your vacation home may help guide this decision.

You must first determine whether your vacation home is considered a residence or a rental property. The Internal Revenue Service considers your second home a residence if you personally use it for either 14 days a year or more than 10 percent of the number of days the home is rented out, whichever is more. Your use, a relative’s use or use by an unrelated party renting at less than fair price all count as “personal use” in determining the nature of the property.

If your vacation home is considered a residence, certain deductible rental expenses may be limited. Renting a property that the IRS considers a residence does not qualify as a “passive activity” for the purpose of income taxes. This matters because a loss incurred from one passive activity can be used to offset the income gained by another. Since renting a second residence is not a passive activity, you cannot use any rental expenses in excess of your rental income to offset income from other sources.

If the IRS considers your vacation home a residence and you rent the home out at least 15 days in a given year, you must characterize the division between rental use and private use. You must report all rental income in your gross income in addition to accurately dividing your expenses between personal use and rental use. Certain expenses, such as mortgage interest and property taxes, are usually fully deductible no matter how they are characterized, but are reported in different ways – to offset rental income if they are rental expenses or as itemized deductions if they are personal.

Other expenses, including maintenance fees, insurance, depreciation and other costs involved with renting out your vacation home are only used to offset rental income when they can be classified as rental expenses. (A complete list of deductible expenses can be found in IRS Publication 527, “Residential Rental Property.”) The allocation to rental use determines the amount of your expenses used to offset rental income. If you rent the home for half of the year, then half of your expenses may be deducted against your rental income. Given the complications of this division, it is probably wise to involve a tax professional if you intend to use your property for both personal and substantial rental activity.

If you do not want the burdens of allocating expenses and continually seeking renters, consider taking advantage of the preferential tax treatment the IRS offers for short-term rentals. The IRS permits you to rent your vacation home for fewer than 15 days annually without reporting any rental income in your total income, thus tax-free. Understandably, you may not deduct any expenses related to renting the home, as there is no reported rental income to offset. In this scenario, you would itemize all of your mortgage interest and property tax deductions on Schedule A.

If your second home will be primarily for personal use, be aware of residency rules in the states where both of your homes are located if they are not the same. Reestablishing your residency can be useful, but is sometimes challenging. New York, for example, is notorious for finding ways to keep its former residents on the tax rolls. A former New Yorker may want to take advantage of Florida’s preferable tax climate, but it isn’t simply a matter of deciding it’s a good idea.

While a timeshare may seem like a better idea on paper than buying a vacation home, the reality makes it unappealing for most people. In a timeshare, you pay a lump sum up front and maintenance fees thereafter. Atraditional timeshare then guarantees you the use of a specific unit at the same time every year (typically for a week, though it varies). Some newer timeshares operate on a points system, which gives users more flexibility in when and where they vacation, but also leads to competition for the best units at the most desirable times.

Though a timeshare is cheaper at the outset than buying a vacation home, it does not offer the same equity or appreciation potential. In effect, you are simply paying for years of vacations in advance, not investing. Additionally, maintenance fees can increase, and most timeshares don’t have a built-in expiration date. Because timeshare property is notoriously hard to sell, this can leave you (and potentially your heirs) indefinitely paying fees on a property you no longer wish to use. You would likely do better to earmark a portion of your portfolio for an annual vacation rather than to purchase a timeshare. This would allow your assets to appreciate, and would avoid the risk of locking yourself into an agreement with no simple exit.

If you decide to purchase a vacation home, several considerations remain. Location is crucial. Choose a region where you will want to be often – once a year or more – and possibly to the exclusion of other travel, depending on your time and resources. Rural areas can sometimes increase expenses; for example, insurance may be more costly if you are far from the nearest fire station. In addition, many desirable vacation properties are at increased risk for floods or earthquakes, further driving potential insurance costs up. If your desired property is abroad, review that country’s ownership laws and its history of honoring ownership claims from noncitizens.

Finally, think ahead to the possibility of selling your vacation home one day. As soon as your use of the property declines, it is probably better to sell it to eliminate the carrying costs and free the capital for other purposes. You may use the house less than you expected, or you may have used it a great deal when your children were younger but less now that they have become adults. Regardless, getting the process under way as soon as you know you want to sell is important. The housing market is still relatively weak, so it may take longer to sell the property than you expect.

If you rent your vacation home enough for it to be characterized as a rental property, you will want to recover the cost of the home through depreciation. Recovery of the cost for residential rental property under the General Depreciation System (GDS) spans 27.5 years. This capitalized expense can be used to offset rental income, thus lowering your tax bill. Deducting depreciation may cause a net loss on your rental property; however, since your second home qualifies as rental property and not as a residence, you can reduce other income from passive activities with the loss. Remember, if you visit the home on vacation, you may only deduct depreciation allocated to rental days.

When the time comes to sell your vacation home, note that the IRS will treat the sale differently from that of your primary home. Your vacation home does not benefit from the $250,000 capital gains exclusion ($500,000 if married filing jointly) that your primary residence does. If you have owned the property at least 12 months, any profit from the sale will be taxed at the long-term capital gains rate.

In addition, if you claimed depreciation on the home due to rental use, you will need to refigure your cost basis to determine the gain. Even if you did not claim the depreciation deduction, you must still reduce the cost basis of the home by the amount of depreciation you could have taken. The portion of gain on the sale due to depreciation lowering your basis is considered depreciation recapture and will be taxed at 25 percent.

A lose-lose scenario arises when selling a vacation home; you do not receive any of the capital gains exclusion mentioned above, nor do you receive any tax benefit if you realize a loss on the sale. For this reason, consider converting your vacation home to a primary residence before selling. If you make your second home your primary residence for two of the five years prior to selling, you will qualify for the maximum capital gains exclusion.

If you want to keep the vacation home in the family rather than selling, it can cause some estate-planning complications. No matter how well your children get along, co-owning a property can lead to disagreements and hurt feelings, as can giving one child the home and another child an asset with less sentimental value. Even if your children share without issue, they may leave it to their children, resulting in a property split between eight or 12 cousins who may or may not know or like one another very well. Those who wish to keep the property may not be able to buy out those who wish to sell. All in all, it can create drama you may not foresee.

In the case where selling the home is too painful or impractical during your lifetime, you can direct your estate to sell it and divide the proceeds among your heirs. Alternately, you can set up a trust for the property’s operating expenses, then grant your heirs use of it under certain circumstances. Whatever you do, make your desires explicit, both in your will and by discussing them with your children or heirs. Ideally, involve a financial planner or an estate-planning attorney. Put everything in writing.

A vacation home can be a wonderful luxury, providing a place to get away from your day-to-day life and to build treasured memories with friends and family. As long as you think of it as a purchase rather than as an investment, you can make an informed decision about what’s right for you. Then, if you do buy a vacation home, you can approach it with realistic expectations and a good chance of enjoying it for years to come.

Pros and Cons of Owning a Vacation Home

A vacation home is a second home as a supplement to your permanent home. As an owner of two vacation houses I can introduce you to a number of aspects that will help you getting your dream vacation real estate with lasting pleasure for yourself and your family. In fact when you read this easy list you will also get an impression of the pros and cons of owning an extra home for vacation.

Some of the same aspects of buying a vacation home are exactly the same as for buying a permanent home.

Price and running expenses of the vacation home

For most of us the price when we buy a home and the costs through the year are obvious and important limitations to take into account. Make sure to think through what you can afford now and what you can afford when you retire if that is in the horizon.

The most important aspect of a vacation house

If you ask a real estate dealer about the three most important aspects when you are searching for a new house he will say: 1. Location, 2. Location and 3. Location.

Think through what will that mean for you. When you get a home for vacation you might be able to improve it and make it bigger and better. But you cannot change the location for the same house or vacation flat.

Many will summarise it in the way that it is smarter to buy a not so super vacation home in a super nice location – than the opposite.

The style of the vacation home

As we already have 9 grandchildren from our four children we gave a high priority to our vacation houses that could accommodate everybody. Not in a luxury way but in a functional way. Other couples might be more focussed on having a more luxurious living space for themselves and say two friends on overnight stay or the like.

Other families might be more focussed on finding a rather simple and basic accommodation that is not demanding in anyway but which might have a rustic appearance.

Facilities at the vacation home

If you go for a vacation house far away from other people the facilities in the house might be quite simple and primitive. You might not even have running water and toilet facilities.

In such a place it will also be a challenge to get help from professionals when you need repair and service. On the other hand such a house might be rather cheap to buy.

How often will you or family members use the vacation home?

Be realistic and calculate how often you and your family would actually be able to make use of it when you think of your checklist for reflections before you buy an extra home for your leasure time. A vacation house or other vacation home must not develop to be a burden in daily life. Difficulties and expenses going there should be a part of your calculation, but also your ideas of alternatives like going abroad on vacation.

Can you make use of the vacation home in the way you want?

Finally you should think over and discuss in the family which kind of activities you want to have as options when you search for a vacation house or flat. Some families are very focussed on skiing, others on swimming and sun bathing on a beach, others on wildlife experience and others again on hunting. If you have teenage children ask them what could attract them and expect to let them bring a classmate or other guest with them when staying on vacation.

Summing up the pros and cons of owning a vacation home

Pros of a vacation home

You will have the ability to escape from your daily duties and exchange your home environment with something different that might reduce stress and improve your feeling of being on vacation.

Often you will combine your trips to your sparetime home with social activities like inviting friends and family members. Your guests will often think back of such visits with much more satisfaction and pleasure compared to normal social gatherings in your permanent home.

Your children will get a wider horizon by being familiar with another location than their daily surroundings.

Cons of a vacation home

A vacation home is an extra burden in economy and daily management.

It might limit your access to travel to new places and to experience unfamiliar sightings and cultures.

It might generate some discussions in the family when to go and when not to go. You might experience clashes between your dreams of going to your vacation place and to fulfil expectations to stay home and be involved with other activities, e.g. birthday parties of friends etc.

And finally it will not be possible to be sure when you can sell your vacation home in time to a decent price.

See more on http://www.IslandVacationTips.com concerning the special attraction of is

Kissimmee Vacation Homes in Orlando

One of the most popular vacation destinations in the world is Orlando, Florida. A huge reason why so many people visit this part of the world is because of the Walt Disney World resort and its theme parks. Walt Disney World resort is the world’s largest recreational resort and is located in both Lake Buena Vista and Kissimmee.

Kissimmee is located on the southern part of the Disney complex and it’s here that you’ll find most of the areas vacation rental homes. There are many advantages for renting a vacation home in Kissimmee but number one amongst them is the ability to enjoy a luxurious yet affordable vacation. The second reason is the fact that you are just moments away from enjoying the Disney experience as well as all the other local theme parks such as Sea World and Universal Orlando, not to mention all the other attractions that the area has to offer.

A stay in a vacation home is simply a far more luxurious vacation than compared to staying in a hotel. The home is far more inviting and has much more space than the typical hotel room or suite. You can relax in private without worrying about noisy neighbors, you have your own private pool to splash around in and you have an element of privacy that you just can’t get at a hotel.

Most vacation rental homes are conveniently located in quiet residential communities but just moments from the main area theme parks. A Kissimmee vacation home offers many perks that a hotel simply cannot. Things such as large screen TV’s, separate bedrooms, games rooms, home theaters, and two or maybe three large living areas top the list.

Cost is also a major consideration and if you are traveling with a large family then putting them up in several hotel rooms can get very expensive. Depending on the size of your family, you can rent a house with three bedrooms, or more, for around the same price of one hotel room and it is certainly a far better option than trying to cram everyone in to one hotel room. Just imagine the convenience of not having to wait for your turn to use the bathroom or watching what someone else wants to watch on TV as vacation homes usually have TV’s in each bedroom.

One major drawback of hotels is the fact that most hotel pools are situated outside in the open air and that means you may soon be the target of annoying insects or bugs. Each vacation rental house comes with a screened in lanai and pool area that prevents annoying pests from attacking you and this means all the family can enjoy relaxing and unwinding in comfort.

A fully functioning kitchen is also another benefit of vacationing in a rental home. Going out for every meal soon gets tiring not to mention very expensive. Vacation homes give you far more options than a hotel with a solitary restaurant that opens when the hotel says it will open. Naturally, you might fancy a lie in one morning and a kitchen allows you to eat what you want, when you want to eat it so there’s no missing breakfast. In fact, it’s just like being at home as you can get groceries from local stores and enjoy the feeling of being home away from home.

Vacation homes are also great places to come home to after a busy day at a theme park or visiting some local attraction. Sometimes you might just fancy a quiet night in and nothing can be better than ordering a pizza or cooking a sumptuous meal for the ones you love at the end of a busy day. Each vacation home is usually equipped with everything you might need for cooking and baking and preparing a meal on vacation is just one way to involve the whole family and have some fun.

Talking of family fun, most vacation homes also have a whole host of amenities that include cable TV, DVD players, broadband internet, video game systems, pool tables and a whole lot more for all the family to enjoy. Sometimes you may find that you’ll just not want to go out and that you just want to enjoy a day at home. Vacation home rentals really do give you lots of space to move around and live in and it’s not uncommon to feel like a King or Queen in a palace when you take a vacation in a rental home.

In fact, those that choose to vacation this way rarely go back to hotels afterwards so if you haven’t stayed in a vacation home before, this really is something you need to look into before your next trip.

About Nigel Worrall:
Nigel Worrall is President / CEO of Florida Leisure Vacation Homes & Total Real Estate Solutions. He is regularly sought by the media as a vacation home and real estate expert and has featured on NBC, ABC, Fox, CBS. He has also featured in The Wall Street Journal, USA Today, New York Times, Newsweek, Chicago Sun Times, Washington Post, Orlando Sentinel, Orlando Business Journal and several other leading publications. Nigel is also the best selling author of “Big Ideas For Your Business” (Advantage Media)
Nigel serves many clients around the world as a Realtor, Real Estate Broker, Real E

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