Negotiating with the seller is always worth trying, even in a hot housing market. Don’t be afraid to offer lower than the asking price and negotiate up! As mentioned earlier, plan for your
Is This Your Situation: Considering Purchasing a Vacation Home?
Dated: November 17 2020
Buying a vacation home is one of my favorite topics. Why? Because talking about acquiring this type of residence combines real estate and going on vacation. But with any investment of this magnitude, research will help you make the most informed decision. Here are my seven considerations to make before jumping into your first vacation home.
1. Your budget. Yes, this is obvious, but determining what you can afford gets the ball rolling.
2. Your long-term plan. Will this be your primary residence at some point? Tax laws changed in 2008 regarding income taxes on the sale of secondary homes. Even if you live in the home as a primary residence and sell it after two years, the profit is still taxable. But don't let that deter you, as some vacation homes are worth more than title holder's primary domiciles. And there are ways to minimize the tax implications in the event you sell it.
3. Rental options, if you want or need to lease it out. This point goes back to your initial budget. Can you afford the property outright or do you need rental income to help with the payments? The IRS stipulates what is considered personal vs. commercial property when it comes to second homes and rental income. If you rent it 14 or fewer days during the year, you keep the cash tax-free.
If you decide to go the income property route, tax deductions related to an income property are real estate taxes, casualty losses, management fees, maintenance, utilities, insurance, and depreciation. Transient occupancy taxes (like a hotel tax) may apply, depending on where you live.
Rental expenses like property management fees are typically 8%-12% of the rent or a flat rate. Read the small print regarding their vacancy policy. Management expenses related to rental activity are tax deductible.
4. HOA dues and rules for the neighborhood. Ask ahead of time what the policy is regarding renting out your slice of their collective pie. Also, if there are dues, what do they cover?
5. Insurance. If you use the house as commercial (rental) property, you could deduct the premiums. Casualty insurance in flood, hurricane, earthquake or lava flow zones is considerably more expensive than insurance for a home in your typical suburban development. Research here will save you some sticker shock when you call for a quote.
6. Maintenance costs, like shoveling snow out of the driveway, add up quickly, taking a chunk out of your cash reserves.
7. What will you do in emergency situations? Do you have friends that will call you if a tree falls on your roof? Or will you pay someone to look after the place while you're away?
"Your Legacy Begins At Home" Janette and Doug and their Friend Team have more than a real estate practice; they have a mission called "Your Legacy Begins At Home". The mission combines years of real ....