1. Where's a good place to buy?
Before you invest in a 2nd home, visit the area a few times.
2. Can you afford it?
Look beyond the sale price to calculate the true cost of home ownership:
· Furnishing a new home
· Financing (lender may charges a higher interest rate on 2nd homes)
· Property taxes
· Utilities (water, gas, electrical, trash removal)
· Home maintenance & repairs (set aside about 2% of the home's value each year)
· Other maintenance services (landscaping, snow ploughing).
3. Know all the rules.
If you plan on rental income to offset some of the expenses of owning a home, research all the local rental rules before you buy and talk to local agents and vacation rental companies about demand.
4. Renting out a vacation home comes with expenses.
Will you do all the advertising yourself, or hire a company to manage all aspects of the rental process, including cleaning between tenants (expect the management company to pocket anywhere from 20% to 50% of the rental income)?
5. How will it affect your taxes?
If you are going to rent out the property for 15 days or more during the year, you will need to pay income taxes on the rental income you receive. However, operating expenses such as utilities, repairs, insurance and management fees can be deducted against the rental income, with deductions allocated according to the number of days the property was rented versus the number of days it was reserved for personal use.