Friday, July 17, 2015

Before buying that dream vacation home …

Vacation-home salespeople dangle the lure of rental income in front of buyers like a fresh worm in front of a hungry bass. So it’s no surprise that in a survey
by the National Association of Realtors, 92 percent of vacation-home buyers said they planned to rent their property within 12 months, and 76 percent said the potential for rental income influenced their decision to make the purchase.
What’s more, many pre-retirement-age folks are taking the opportunity to purchase a high-end second home at a more affordable price now and rent it out until they retire.  
Please don’t buy a vacation home thinking it’s a great addition to your real estate rental portfolio. I have never seen one that was. Buy it because you want a nice place to spend some time. Any rental income should be considered extra cash to help offset your expenses.
If you think this is for you, check the HOA’s rules to ensure short-term rentals are allowed. And don’t forget that there may be expenses that you don’t have with your other rentals, such as hotel-occupancy taxes, maid service, and management-company fees. Also your insurance company may require special liability coverage renting out a luxury property.
Gonna go in with some friends on the deal? Maybe you’ve taken vacations with them, had a great time, and get along well. What could possible go wrong?
A lot … for instance who will use the home and when. Can relatives or friends of your friends spend time there? What about décor? Will one of you want contemporary while another wants rustic?
Most importantly, though, how well do you know your friends’ financial situation? How good is their credit? Could you count on them to come up with the bucks for maintenance and repairs?

Better have everything in writing — kind of like a prenup — so you don’t get stuck paying the bills. While you’re at it, include a provision on what happens if one of your friends wants to sell his or her share. You sure don’t want to end up with a stranger as a new partner. 

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