Do you and/or your clients ever dream about having a second/third home in a favorite vacation destination? Spending the day just indulging yourselves in tepid, crystalline water or flying down the slopes on champagne powder and then heading home to your own Jacuzzi tub where you can turn up the music as loud as you want without offending some non-existent hotel guest staying just behind too-thin drywall next to you? Sounds pretty perfect, right…so perfect that you and/or your clients would use that property all the time, right?
But hold on…vacation fantasies and vacation realities are two different things when it comes to actually purchasing and using a vacation property.
LendingTree just released its study on vacation properties and it turns out that only 26% of vacation property owners use their property more than five times a year. 37% of vacation property owners use their property less than five times a year and 37% of vacation property owners use their property one time a year or not at all. Correct…72% of vacation property owners use their vacation property less than five times a year or not at all.
LendingTree also found that just 41% of owners who acquired their vacation properties to generate rental income actually did so. Only 31% of vacation property owners rented out their properties on a year-round basis.
The bottom-line with vacation properties? They are expensive to own once the property owner pays for the monthly mortgage on the property, the taxes, utilities, homeowners’ association fees and maintenance upkeep. If renting out the property to generate income, add onto those expenses liability insurance and property damage that may be caused by guests/renters. Additionally, LendingTree discovered that the average income of vacation property owners is approximately $100,000…not a lot of cushion if something goes wrong.
One little known fact about vacation properties to keep in mind as well is that lenders expect larger down payments, usually 30% rather than 20%, and higher mortgage interest rates by some .25% to .375 on vacation properties, according to Inman’s Guide to Second Homes.
Remember too that you and/or your clients may want to sell the vacation property some time down the line. Lending Tree discovered that 29% of vacation homes are sold because owners need the income from a sale and that the properties themself became too expensive to maintain particularly since 58% of the owners said they didn’t use their properties enough.
The luxury agent Peter Lorimer told InmanNews that potential vacation property owners ought to consider their long-term ROI and the property’s anticipated appreciation before signing on the dotted line. “I’d calculate the acquisition cost plus renovation cost…and I’d like to be slightly in the positive (if the property) is in a great area (rather than) being massively in the positive in an area that’s questionable.”