Pennsylvania is not only home to some of the world’s most beautiful landscapes, but it is also rich in history and culture. Pennsylvania plays a major role in history, from the battlefields of wars that defined the United States to the engineering wonders that helped establish the state. As the fifth most populated state, the region has a lot to offer, from strong career prospects to calm, serene locations where anybody may rest and revel in nature’s wonders.

Whether you want to relocate to Pennsylvania or are simply seeking the perfect weekend getaway, this article is for you as we consider the best place to buy a lake house in Pennsylvania. Now let’s take a tour of the Top Six Best Places to Buy a Lake House in Pennsylvania. Here we go.

Lake Wallenpaupack

This 13-mile-long reservoir, with 52 miles of unbroken coastline and 5700 acres, was created in 1926 and is one of Pennsylvania’s popular holiday destinations. The region was named “Wallenpaupack” by the indigenous Lenape people, which means “The Stream of Swift and Slow Water.” Lake Wallenpaupack’s activities are as diverse as its expansive coastline and are sure to satisfy the entire family.

The lake is bounded to the north by the lovely tiny town of Hawley and several other local centers and lakes such as family amusement parks, resorts, and golf courses, as well as Fairview Lake in Palmyra Town, south of Wallenpaupack. Among the things you can do includes: outdoor adventures like hiking, biking, visiting amusement parks, zoos, historical locations, shopping, and try out different local cuisines.

Median housing value in Hawley:  $230,700 (+5.1% over past 10 years)*

Conneaut Lake

Photo Credit: Wikimedia 

Conneaut Lake is Pennsylvania’s largest natural lake. It was formed around twelve thousand years ago by glacial ice that geologists think was up to a mile deep. The lake has contributed a lot to the state’s economy as it has served as the town’s natural resource for almost 5 decades.

Conneaut Lake is now primarily a resort town, offering an abundance of recreational activities and beautiful landscape views to residents and tourists all around the world. A few activities you can do in the area include fishing, boating, skiing, sailing, swimming, and a lot more. Conneaut Lake is a must-see if you’re seeking a destination that offers both the pleasure of experiencing recreational outdoor sports and a peaceful calming environment.

Median housing value in Conneaut Lakeshore:  $137,900 (+3.0% over past 10 years)*

Edinboro Lake

If you wish to enjoy a relaxed lakeside holiday, Edinboro has cabin lodgings that allow you to immerse yourself in nature’s tranquility in the near vicinity. Edinboro Lake is a 245-acre lake in Erie County, Pennsylvania. The town of Edinboro surrounds it on three sides, and State Route 99 goes for a short distance along the coast.

The lake includes two developed beach sections, as well as a public park, all of which provide for public access to the lake. A popular location among tourists is the Edinboro lake resort. The resort provides several community amenities as well as enjoyable activities such as fishing, boating, and sailing. You may go bicycling, wander around local stores, enjoy local entertainment, and eat local food while exploring the region.

Median housing value in Edinboro:  $216,900 (+3.3% over past 10 years)*

Lake Naomi

If you are thinking of bringing your family to a perfect family vacation spot where both the kids and adults can bond and have fun together, Lake Naomi can offer just that. Nestled in the pristine Pocono Mountains of Northeastern Pennsylvania, is the Lake Naomi Club. It is a recreational community that provides a lot of fun and exciting activities for the family to enjoy.

A 277-acre lake with non-motorized boating, fishing, swimming, and sailing is at the heart of the community. There is also a Community Center with a plethora of amenities such as an indoor pool with a splash park, indoor tennis, fitness center, game room, teen area, and activities for the entire family. Furthermore, given the unique combination of tranquil retreat and nearby shopping, Lake Naomi and Timber Trails provide Pennsylvania vacation homes, rentals, hotels, and summer lake houses a tremendous amount of value.

Lake Naomi real estate prices: as of the date of this posting, a 3 bedroom, 2 bathroom house starts at $310,000

Lake Harmony

Photo Credit: Wikimedia 

Lake Harmony is the perfect getaway spot for adventure lovers. Located at the heart of the Pocono Mountains, lake harmony offers breathtaking scenery of pristine glacial lakes, undulating hills, and lush forests that’s waiting to be discovered and explored. There are a variety of things to do in the area. You can spend the day outdoors doing extreme sports adventures like swimming, skiing, canoeing, biking, hiking, snowboarding, you name it.

In the evenings, can spend a wonderful dinner with your family while admiring the beautiful landscape of the town and the natural surroundings. Another fine attraction you can’t miss on a lovely evening in Lake Harmony are theatre performances and concerts. Everything that you are looking for in an ideal holiday location is here.

Median housing value in Lake Harmony:  $288,500 (+7.5% over past 10 years)*

Canahdota Lake

Originally named Washington Lake, it was renamed Oil Creek Lake in 1860 and Canadohta Lake in 1894 after the renowned Chief Canadaughta of the Cornplanter Tribe of the Six Nations. Canahdota lake is considered one of the many beautiful scenic treasures of Pennsylvania. It is a fantastic place to relax away from the hustle and bustle of city life. It lies in the heart of Bloomfield township in northern Crawford County. Canahdota Lake is a low-cost community that provides a variety of leisure activities that you’ll enjoy on a relaxing weekend day. You may go fishing, sailing, boating, hiking, biking, or simply walking about and admiring the natural beauty of the town. 

Median housing value in Canahdota Lake:  $73,200 (+0.8% over past 10 years)*

Closing Thoughts on the Best Place to Buy a Lake House in Pennsylvania

Mountains, lakes, beautiful woodlands, thrilling activities, recreational sports, a relaxing atmosphere, and a variety of local cuisines are just a few of the many attractions Pennsylvania has to offer. The range of living conditions available here gives alternatives for every price level and lifestyle, making the state a great place for everyone to visit. The places we’ve included here are only a few of the many beautiful places in the state so be sure to explore other areas that may interest you. We hope you found this article on the best place to buy a lake house in Pennsylvania helpful. Good luck in your search.

Be sure to explore our other articles on the best places to buy a vacation home, including the best places to buy a cabin in California, the best places to buy a lake house in Michigan and the best places to buy a beach house in Texas.

*Housing data provided by BestPlaces.net

The post Best Place to Buy a Lake House in Pennsylvania: Our Top 6 appeared first on Vacation Property Online.

As a real estate investor and owner of a vacation rental property, I’ve dealt with numerous ownership questions first-hand. I’ve also read various resources over the years in order to supplement my own experiences. Yet, there are many different resources out there on various topics, from the true costs of owning a second home to the rules and regulations governing different vacation property types such as waterfront properties. As a result, it’s sometimes hard to get a clear picture of what you should know before buying a second home and what ownership is truly like. With this in mind, I set out to create one resource that provides you with everything you need to know before buying a second home and, in particular, a vacation home.  

I should point out that I use the terms “second home” and “vacation home” interchangeably, mostly because second homes are often bought as vacation homes. Still, if you’re looking to buy a second home for another purpose, such as a part-time residence, investment property or eventual retirement home, the principles discussed in this article will still be relevant. Also, while this article focuses on subjects that are relevant for vacation homeowners in the United States and Canada, most topics will be relevant in other jurisdictions. With this in mind, if you’re wondering whether buying a second home is right for you, then you’ve come to the right place.

For an overview of how to buy a vacation home, explore my article on How to Buy a Vacation Home: A Practical Guide.

Setting the Stage

As you contemplate buying a second home, keep in mind that you will have your own unique set of circumstances, from personal finances to the locations you are interested in. Therefore, you should seek appropriate advice from qualified advisors, including accountants, lawyers and realtors, in your hunt for a second home. I can’t emphasize enough the importance of utilizing each of these experts, who have saved me countless headaches and likely thousands of dollars. Still, based on my own knowledge and experience, this is everything you need to know before buying a second home.

Types of Second Homes/Vacation Properties

As you consider buying a second home, a logical starting point is to consider the various types of properties. First up are the usual suspects in houses, condos, cabins and cottages. 

Houses, condos, cabins and cottages

Each of these property types are fairly well understood so I won’t describe them in detail, other than to highlight what you really need to know for each: 

• House vs. condo. With a vacation house, you’ll have more privacy than a condo but also higher maintenance costs. One of the things I like most about my vacation condo is that it’s fairly hands off. I can leave it vacant for extended periods of time and, other than minimal upkeep, I don’t have to worry about major repairs or landscaping the yard, for instance. It does help, however, to have a proactive and well run strata (or HOA). Still, if you want more privacy and can handle more responsibility and expense, a vacation house may be right for you.
• Cabin vs. cottage. While cabins and cottages differ primarily by the materials used to construct them, I typically consider them one and the same. Sure there may be different maintenance considerations for a log cabin versus a brick cottage, but the premise is the same. Typically a cabin or cottage is located in a more remote location close to nature. Thus, in addition to the considerations above for a vacation house, you’ll need to take into account how remoteness will impact your use and enjoyment.

Waterfront and water-access only

Waterfront properties are unique for many reasons, including the additional regulations that govern such properties and additional maintenance required. They’re in high demand and as a result typically hold their value. But the premium paid for waterfront is not the only relevant consideration as you need to keep the following in mind before buying a second home on the waterfront:

• Home inspections. In addition to the typical items to look out for in a house inspection, corrosion caused by salt in the air and mildew/mold issues from higher moisture levels can all cause damage on a waterfront property. Boundary surveys, elevation certificates and water quality tests can also be important. For instance, how far above the sea level or the lake shore is the house and is the area prone to flooding? In short, be sure to hire qualified home inspectors, surveyors and other experts before buying a waterfront property.  
• Understand what you own. With waterfront property, it is particularly important to review the legal description to determine where the lot extends. Additionally, you will need to determine whether there are any additional encumbrances on title that would otherwise limit your use of, or access to, the waterfront. Whether the property is located in the United States or Canada, it may be worthwhile to run this by a real estate lawyer before buying a second home on the waterfront. 
• Understand the limitations that come with it. Understanding what restrictions come with the property and what you can build on it are particularly important. Governmental regulations on waterfront properties govern such things as site density, minimum building setbacks from the water, the kinds of uses that are permitted, whether you can build a dock or seawall and even building design. In the United States and Canada, you may also need approval from other government departments including the U.S. Army Corps of Engineers and Department of Fisheries and Oceans (in Canada) for work in and around the water.
• Additional maintenance. Not surprisingly, waterfront properties require additional maintenance and expense in order to keep the property in tip-top shape. Potential issues include:
  • Humidity resulting in mold 
  • Corrosion from salt in the air (in the case of oceanfront)
  • High winds causing structural damage 
  • Falling trees in open areas
  • Floods 

In order to combat these issues, consider storm-proofing the house and ensure you have adequate insurance coverage. In short, waterfront properties are expensive to maintain so be prepared to pay double a typical maintenance budget.

• Water-access only. For some, owning your own private piece of paradise is appealing yet the remoteness and/or inaccessibility of water-access only properties may deter some buyers. Obtaining financing for these types of properties can also be difficult. While not for everyone, the general feedback I’ve received from other owners is that water-access only properties are an affordable alternative if you have access to reliable transportation and are willing to forego modern day conveniences. 

Fractional ownership and timeshare

Fractional ownership structures and timeshares are also an affordable option for those interested in dipping their toe into vacation home ownership. I’ve personally never been drawn to these types of properties because I’ve always (a) viewed outright ownership as a better investment and (b) liked to have complete freedom and control in terms of the use of my property. With this in mind, this is what you need to know before buying a second home that falls into one of these categories:

• Fractional ownership.  With partial ownership, several buyers each hold an equal interest in the title to the property. This is different from a timeshare where title to the property is 100% held by you as the principal owner. As an owner of a fractional interest in a vacation home, you’re also often allowed to use the property for a longer duration than a timeshare. From an investment perspective, you may see an increase in the value of your fractional interest over time.
• Timeshare – With a timeshare, your usage rights will vary slightly depending upon the type (e.g. fixed week, floating etc.). You also have no control over the property and they are notoriously hard to sell. Yet, timeshares are quite affordable, there is less responsibility as an owner and you’ll have certainty as to where and when to take your vacations. For these reasons, a timeshare is a lifestyle purchase as opposed to an investment. Importantly, I’ve heard of too many cases of timeshare owners making emotional decisions when buying-in originally so be sure to take some time before buying.

Leasehold

An owner of a leasehold property has an exclusive right to occupy the property for a specified period, in some cases up to 100 years or more. At the end of the lease, the right to occupy the property reverts to the owner. For this reason, leasehold properties are typically more affordable and there are often restrictions with what you can do with the property during the term of the lease. If you’re looking at your second home as an investment property, then I would avoid buying a second home that is a leasehold since you don’t actually own the property and therefore don’t typically enjoy the same upside in price appreciation. 

Different Second Home Uses

In addition to buying a second home for vacation purposes as a “home away from home”, there are many different reasons to buy a second home. Here are a few insights I’ve learned over the years about these other specific uses:

Vacation home vs second home vs investment property

I find there is a lot of confusion as to the difference between a vacation home, a second home and an investment property and the implications of each. Importantly, the designation of your property can have implications on your mortgage terms and tax treatment. While I encourage everyone to obtain their own independent tax advice, here are some important things to know:

• Vacation home vs second home. In short, there is no real difference between the two. More specifically, a second home is a residence you intend to occupy for part of the year in addition to your primary residence. Typically, second homes are owned as vacation properties but they could be used for other purposes (such as a condo in the city for work). 
• Second home vs investment property. An investment property differs from a second home in that it is owned primarily for investment purposes, typically through rental income, rather than as a second residence. A vacation rental property is one such example of an investment property, where the primary purpose is to generate income from the property as opposed to using it as a second home. 
• Mortgage implications. Mortgages for second homes will typically be associated with stricter lending criteria and higher interest rates than primary residences. For an investment property, such as a vacation rental, you can expect interest rates to be even higher and even higher down payment requirements, although every lender will have their own lending terms. 
• Tax implications. Depending upon the designation of your vacation home as a secondary residence or revenue-producing investment property, and the thresholds set by the Internal Revenue Service (IRS) and Canada Revenue Agency (CRA), you may be required to report and remit tax on any income derived from your property. Additionally, taxation of capital gains upon the sale of your vacation home is treated differently from a primary residence. 

For a more complete discussion of mortgage terms and tax implications for vacation homes, see below under Vacation Home Financing and Tax Considerations, respectively. 

Owning a vacation rental property

Thanks to the popularity of vacation rental platforms such as Airbnb and VRBO, it’s easier than ever to own and operate a vacation rental property. Yet there are many items to take into account before investing in one, from the tax implications of ownership to how to manage your property. While I speak to tax considerations a little later on, here are some other things you need to know before buying a vacation rental property:

• Short-term rental regulations. Many cities and towns in the US and Canada have restrictions on renting out your property short-term. This can range from a simple requirement to obtain a business license to an outright ban altogether so be sure you understand the local regulations. Rules can change overnight as well so it’s best to invest in those areas that cater to tourists, such as resort municipalities, where vacation rentals are viewed more favorably. 
• Vacation rental platforms. I’ve used multiple platforms over the years and each of them has their strengths and weaknesses. Importantly, it’s never a good idea to rely 100% on one vacation rental platform so I recommend using multiple platforms. I also recommend that you create your own website so that you can (a) take direct bookings through friends and family without having to pay any fees associated with rental platforms and (b) slowly build-up search engine optimization over time in order to show up in Google search results. If you do end up taking direct bookings, ensure you require a sufficient damage deposit and execute a short term rental agreement like the one provided here.
• Property management. When deciding whether to manage the property yourself or hire outside management, it ultimately comes down to your willingness to spend additional time and resources dealing with guests or whether you’re willing to pay someone else to do it. If you decide to hire a property manager, expect to pay between 25% to 30% of the rental fees. My wife and I manage our vacation rental and, in my experience, the biggest issue is finding good, reliable cleaners. If you’re willing to do the cleaning yourself then that’s one less issue to worry about. 
• Cell phone and internet access. This is more of an issue for remote properties, but you’ll need to be able to communicate with your guests and deal with issues as they arise. It’s therefore important to have reliable cell phone reception and internet access. 
• Insurance. This one should be obvious but you’ll need to ensure that your insurance policy adequately covers a vacation rental property. More specifically, be sure to understand the specific terms of your policy. For instance, my policy requires all guests to be 21 years or older so our house rules require it.
• House rules. Speaking of house rules, it’s important to establish house rules for your guests to follow. By doing so, you can minimize damage to your home and otherwise control the guest experience.
• Vacation rental mortgages. In order for your lender to properly assess the risk profile of your loan it will need to understand the proposed use of the property. Accordingly, be sure your lender is aware that you intend on renting out your property when you submit your loan application.

Owning a family vacation home

Dealing with family dynamics can be difficult when it comes to managing a vacation home that is shared by multiple family members. Establishing house rules and splitting up the time equitably between family members are each important. Having a proper exit strategy is also particularly important in case things don’t work out as planned or one of the family members experiences unexpected financial hardship. Before buying a vacation home with a family member, consider whether ownership as tenants in common makes more sense than joint tenants. With a tenancy in common, each family member may control an equal or different percentage of the vacation home and has the right to leave their share of the property to any beneficiary. This provides more flexibility than joint tenancy where, upon the death of an owner, title passes to the surviving owner. Note, however, that if there is a mortgage on the property, typically all borrowers sign the mortgage documentation meaning that if there is a default the lender may realize the debt on all family members.

Owning a weekend home

With a weekend home, the property will be vacant during the week when not in use, perhaps even over the winter months entirely. With this in mind, here is what you need to know:

• Costs vs benefits. With all vacation homes, and weekend homes in particular, you’ll need to ask yourself how much you can reasonably expect to use the property? In particular, ask yourself whether it makes more financial sense to rent versus own a place in your desired area. If you can regularly rent something for a reasonable price, then perhaps it makes more sense to rent instead of own.
• Travel time. Personally, I’ve always steered away from trips that are 3 hours or more unless I am planning on staying there for three or more days. Ideally, your total travel time will be under two hours if your vacation home will be used primarily for weekend use. Otherwise I just find that you spend too much time travelling to your destination as opposed to actually enjoying it. For other travel time guidelines, I find these rules of thumb useful. 
• Secure storage. If you want to avoid packing, securing and transporting all of your gear every weekend, such as a boat, ATV, paddleboard, kayak or canoe, I recommend having secure storage on site where these items can be permanently stored. 

Second Home Financing

Securing sufficient financing to buy a second home, with reasonable terms, may be the most important consideration for many would-be second homeowners. As mentioned earlier, mortgages for second homes will typically be associated with stricter lending criteria and higher interest rates than primary residences. For vacation rental properties, you can expect interest rates to be even higher in addition to even higher down payment requirements. For reference, even though I have a strong credit history, consistent income and sufficient savings for a 20% down payment, only one of the Big Five Banks in Canada was willing to lend to me when I purchased my vacation rental property and my mortgage was about 75 basis points higher than a mortgage for a primary residence. The reality is that there are fewer lenders willing to lend you money to buy a vacation rental, and those that do require a higher interest rate due to the increased risk profile.

Curious to know about how much you can afford in a second home? Be sure to explore this second home affordability calculator.

Based on my own experience, and the stated policies of major banks in the US and Canada, here is what you need to know:

• Credit score.  A credit score of 700 or more will increase your chances of approval, however a minimum of 640 is typically required.
• Interest rates. Expect interest rates to be as much as 0.25% – 0.5% higher than primary residence interest rates. For a vacation rental property, you can expect interest rates to be even higher (e.g. 50 to 75 basis points). With today’s low interest rate environment, however, it’s a great time to get affordable vacation home financing.
• Down payment. Expect to pay between 20% – 30% as a down payment. To lower the risk of default, lenders require higher down payments.
• Maximum debt-to-income ratio. Your debt-to-income ratio should be no more than 43% overall. Your debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt. This includes the mortgage on your primary residence, the new mortgage on your vacation home and any other outstanding debts. 
• Distance from primary residence. In the United States, if you want to take advantage of the more beneficial lending terms (e.g. lower interest rate) associated with second homes as opposed to investment properties, your second home must typically be at least 50 miles away from your primary residence. Otherwise, your second home may be viewed as an investment property in the eyes of a lender. In Canada, the distance from your home will similarly be taken into account as to whether you truly intend to use the home as a secondary residence or an investment property.

Some of the best ways to finance a second home include:

• Second home mortgage. This is the same as a traditional mortgage except that a second home mortgage will exist over, and be secured against, your second home as opposed to your primary residence. 
• Home equity line of credit. A HELOC acts much like a credit card in that you can borrow up to a certain limit and are only required to pay interest on the amount actually borrowed. In order to be eligible, you will need to have equity available in your existing home. Depending upon the lender, you may be able to utilize up to 80% of the equity in your home (or lower in the case of federal financial institutions in Canada), assuming there is no outstanding mortgage or other loan secured against your home.
• Second mortgage. A second mortgage is just that – a second mortgage over your primary residence. These are riskier from a lender’s perspective as the lender will be in second position to the first lender should you default. 
• Cash-out refinance. With a cash-out refinance, you cancel your existing mortgage and enter into a new mortgage with a larger amount than owed on the previous mortgage. You can then use the extra cash to buy a vacation home.
• Private lenders. If traditional banks won’t lend you money, then you may be able to obtain financing from private lenders such as friends, family, a private investor or even peer-to-peer online lending. Just be aware that private lenders typically charge higher interest rates and/or other fees given the heightened risk in lending to someone that the banks won’t.  

True Cost of Owning a Second Home

Before buying a second home, it’s important to understand the true cost of ownership in order to ensure you can afford the carrying costs. In my experience, people tend to underestimate ownership costs so you can expect your monthly bill to be higher. To begin with, let’s look at my own example.

For an accurate estimate of your monthly ownership costs, be sure to explore this cost of owning a vacation home calculator. 

Vacation Home Cost Example

As an example, here is a breakdown of the one-time costs and ongoing carrying costs of my vacation rental property (all in Canadian dollars), which was purchased for $715,000 at the beginning of 2019 and was partially furnished:

• One-time costs:
  • Down payment: $143,000 (20% of purchase price)
  • Property transfer taxes: $12,300
  • Conveyancing fees and disbursements (legal): $1,630.87
  • Minor renovations and furnishings: $4,743.41
  • Special assessment in Fall of 2019: $4,029.75
• Recurring costs (monthly):
  • Mortgage: $2,898.26
  • Property taxes: $246.96 ($2,963.52 annually)
  • Insurance: $70 ($840 annually)  
  • Utilities: $40
  • Cable, internet and streaming services: $122
  • Maintenance and repairs: nil 
  • Ongoing accounting and legal fees: $41.67 ($500 annually)
  • Strata fees: $557.83

Based on the above, my monthly carrying costs are $3,976.72 but I would expect that number to be slightly higher after factoring in additional nominal costs not reflected above. If I add the one-time costs (e.g. property transfer taxes, furnishings, special assessment etc.) and spread them out over the 2.5 years I have owned my home, my monthly carrying costs have been roughly $4,733.52 over that period. Further, while I have not yet spent any material amount on repairs and maintenance, I expect this will catch up to me soon and that my spending will be in line with a more typical allocation of between 1% – 4% of my home’s value being spent annually on maintenance.

Other costs that may be relevant depending upon the circumstances and location of your property include:

• HOA or resort fees
• Vacancy, general excise and other taxes (location/use specific)
• Management, cleaning and other vacation rental ownership fees

Despite your best efforts to plan for everything, I can attest to the fact that unexpected costs arise from time to time. If it’s not a special assessment from your condo association, then it will be your hot water tank or furnace that will give out. As such, keep some cash available for these unexpected costs. 

Opportunity Cost

Perhaps one of the most overlooked costs is opportunity cost, or the forgone benefit that would have been obtained from the next best alternative. This is not easy to calculate in every instance but I recommend trying this real estate ROI calculator. It’s a simple calculator that shows the expected return on investment (ROI) from your second home over the life of the mortgage and, for comparison purposes, the ROI should you instead choose to invest in the stock market over that same period. A little later on I will explore my own expected ROI from my vacation rental property and compare it against a stock market investment. In the meantime, let’s move on.  

Second Home Maintenance

As I’ve already covered off the principal costs associated with owning a second home, I won’t explore maintenance costs any further. I will, however, provide the following insight into second home maintenance generally:

• Less may be more. The more stuff you have in your home, the more that can go wrong. While AC units and hot tubs are nice to have, consider whether it’s necessary to have them in your second home. If not, you may be better off without them. 
• Prolonged vacancy. If your home will remain vacant for long periods, consider hiring someone to check on the property. In fact, you may not have insurance coverage if your home is left empty for 30 or 60 days, depending on the policy. By having someone check on your property every 30 days, you can typically satisfy the minimum requirements under your insurance policy. 
• Install a security system with remote monitoring. Consider installing a security system with remote monitoring to reduce risk of vandalism or theft. With smart video cameras, you also have the ability to keep tabs on your property in case of unexpected events such as a flood caused by bursting pipes or an electrical fire. 
• Winterizing. Simple steps to winterize your property will keep the cold out, the heat in and your energy bill down. Steps like flushing the water heater, adding window insulation film and adding draft guards under doors will all help and with only minor expense.   
• Storm proofing. If your second home is in an area that is prone to storms, you will save yourself a lot of headache by storm-proofing the house as much as possible. Adding storm shutters, trimming trees away from the house and removing clutter from around the yard are simple things you can do. Larger projects, such as structural upgrades, may be necessary and will require hiring qualified help.

Second Home Tax Considerations

First, a word of caution. Tax rules are complex and everyone’s circumstances are different. Accordingly, you should consult a qualified tax adviser in connection with your own tax planning. 

As you consider buying a second home, it’s important to understand the tax consequences of ownership. The two most significant tax implications of ownership are typically (i) taxation of revenue derived from your property and (ii) taxation upon the sale of your property. Let’s take a closer look at each.

Taxation of Rental Income

In both the United States and Canada, the IRS and CRA, respectively, will have an interest in any commercial activities associated with the property and, in particular, rental income. Thus, you will need to give adequate consideration to the tax consequences of renting out your second home.

In the United States, if you rent out your property for 15 days or more, then the IRS may view your property as a rental property. As a result, you will be required to report any rental income and pay appropriate tax. One of the benefits of operating a rental property, however, is that you can deduct various expenses, including property taxes, insurance premiums, condo fees, utilities, mortgage interest and depreciation. These deductions can then be used to offset a portion of the rental income, thus reducing your tax burden. Note, however, that if you also use your rental property as a residence, limitations may apply to the expenses you can deduct. According to the IRS, you’re considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of: (i) 14 days, or (ii) 10% of the total days you rent it to others at a fair rental price. An accountant with experience in this area will be able to advise you as to which expenses you can deduct based on your individual circumstances.

In Canada, if you rent out your property then you will similarly be required to report any rental income and pay tax on it. As an owner of a short-term vacation rental property, an important threshold to keep in mind is the annual revenue limit of C$30,000. If you exceed that limit over four consecutive quarters, you will be required to charge and remit GST/HST on any rental income. Keep in mind that, similar to the US, you’re also able to deduct appropriate expenses from any rental income to reduce your tax burden. 

Whether you’re located in the US or Canada, be sure to retain accurate records of the rental income you’ve received and all of the expenses claimed on your tax return in case you’re ever audited. The retention period is three years in the US and six years in Canada.  

Taxation Upon the Sale of Your Second Home

In the United States, if you have held your second home for more than one year, any profit on the sale will be taxed as long-term capital gains. Notably, tax rates for long-term capital gains are more favorable at 15% or 20% (to the extent that your taxable income exceeds the thresholds set for the 15% rate). Prior to selling your second home, you may want to consider the taxable exclusion of $250,000 ($500,000 if married filing jointly) in gains from sales of a primary residence. To qualify, you would need to treat your second home as a primary residence for at least two of the last five years prior to selling. Note, however, that a reduction is made on a pro rata basis to reflect the period of rental, vacation home or other “non-qualifying use”. Also, keep in mind the IRS’ rules on depreciation recapture tax upon the sale of a rental property. This occurs as a result of a taxpayer deducting the depreciation of a rental property from the taxpayer’s ordinary income. The taxpayer has to report any gain from the disposal of the rental property (up to the recomputed basis) as ordinary income.

In Canada, when you sell your second home any gain will be subject to taxation. This differs from the gain realized from the sale of your primary residence, which is tax-free. If you have not claimed any depreciation expense (or “capital cost allowance”), you will realize a capital gain or loss on the sale. If the sale price is more than your cost, one-half of the capital gain is included in your taxable income. If you claimed capital cost allowance, then selling the property may result in a recapture of your capital cost allowance. When you change your principal residence to a second home or rental property (or change your second home/rental property to your principal residence), it’s called a change in use for tax purposes and the CRA may treat it as if you sold the property. For a principal residence, you don’t have to pay tax on any capital gain up to the point of conversion to a second home. For a second home, any gain accruing up to the point of conversion to a principal residence is taxable. Lastly, if you’re collecting GST/HST as an operator of a short-term rental property, you are required to collect GST/HST on the sale of your property.

Pros and Cons of Owning a Second Home

Any discussion about buying a second home would not be complete without considering the pros and cons of owning a second home. With this in mind, here is my list of the pros and cons of owning a second home:

Pros

• Relatively secure investment. Real estate prices in the United States and Canada tend to go up over time and have not experienced the same volatility as other asset classes. 
• Additional ways to increase ROI. By owning a vacation home, you have the ability to maximize your return on investment through home renovations and/or rental income when the home is not in use (but be mindful of the tax implications).
• Borrowing is cheap. Given the low interest rate environment, borrowing money to buy a second home is cheap (assuming you meet the stricter lending criteria). Because of this, you can build wealth using the bank’s ‘cheap’ money.
• Hosting friends and family. Owning a vacation home is a great way to bring family and friends together as there will be no shortage of visitors.
• Retirement. What better way to plan for retirement than owning a second home as an eventual retirement home?
• Pride of ownership. Speaking from personal experience, one of the best things about owning a vacation home is the joy it brings. Quite frankly, this is often the biggest reason to buy a vacation home.

Cons

• Real estate historically outperformed by stock market. If you’re buying a second home for investment purposes, it’s worth noting that real estate in the United States and Canada has historically been outperformed by the stock market. 
• Lack of diversification. Spending further money on real estate may be risky, especially if you’re not well diversified in other asset classes. 
• Ownership isn’t passive. Unlike owning stocks, owning a second home isn’t passive as it will require ongoing time and commitment, from paying annual property taxes to renewing your insurance.  
• Ownership costs. The expenses can pile up pretty quickly as your second home will require ongoing repairs and maintenance.
• Usage may be less than you expect. This will certainly vary from owner to owner but you may find that you don’t actually use your property as much as you expect. I have historically only used my property roughly two weeks a year but then again I’m also operating a vacation rental property. 
• Vacation home moochers. While hosting friends and family is one of the benefits of owning a vacation home, you may also have to deal with freeloaders looking for a free stay.

Is Buying a Second Home Worth it?

With the above in mind, is buying a second home worth it? As mentioned previously, this real estate ROI calculator enables you to directly compare how a real estate investment will perform (with or without rental income) against a stock market investment. Let’s consider some return on investment scenarios using my own example:

• Vacation home purchase price: $715,000
• Down payment: $143,000
• Mortgage terms: 3.61% interest rate with a 25 year amortization schedule
• Monthly rental income: $5,000
• Aggregate monthly expenses: $2,000

Based on the above assumptions, the real estate ROI calculator shows that I’m netting an extra $102.58 per month in rental income, which would not be available if I instead chose to invest in the stock market. Therefore, I need to compare the value of my vacation home plus $102.58 in monthly rental income after 25 years against investing $143,000 (i.e. the size of the down payment) in the stock market over that same period with no additional contributions. Here’s what it shows under the following scenarios:

Scenario 1: Vacation Home Appreciates 4% Annually and Stock Market Grows 8% Annually

• Value of vacation home (and net rental income) at end of term: $1,971,116.09
• Value of stock market investment at end of term: $1,049,645.16

Scenario 2: Vacation Home Appreciates 4% Annually and Stock Market Grows 6% Annually

• Value of vacation home (and net rental income) at end of term: $1,971,116.09
• Value of stock market investment at end of term: $638,490.68

Scenario 3: Vacation Home Appreciates 2% Annually and Stock Market Grows 8% Annually

• Value of vacation home (and net rental income) at end of term: $1,209,119.17
• Value of stock market investment at end of term: $1,049,645.16

As you can see, I’m better off buying a second home in each of the above scenarios. Of course, the above doesn’t take into account appropriate tax planning strategies. For instance, by utilizing a tax sheltered account such as a 401K plan in the United States or RRSP/TFSA account in Canada, you may be able to shelter some or all of the tax burden of a stock market investment. All of the sudden investing in the stock market doesn’t look so bad, especially if you can’t claim a primary residence tax exemption under the vacation home scenario. The other difficulty is that not all of the benefits or drawbacks of buying a second home can be objectively measured. After all, you can’t put a price on the time spent with the kids (or grandkids) and the lifelong memories that result. On the flip side, it’s hard to quantify or value the additional time spent maintaining your property. Personally, I’m very happy with my vacation home. From the revenue it generates as a vacation rental to the joy it brings me and my family, I expect to hold onto it for many years, and ski trips, to come. 

With that, I encourage you to consider each of the items noted above in this article before buying a second home. This is certainly everything I wish I knew before buying my vacation home.

About the Author

Peter is a father, entrepreneur and real estate investor. Together with his wife, he owns and operates a vacation rental property in Whistler, BC and is eager to pass along his knowledge and personal experience.

The post Buying a Second Home: Everything You Need to Know Beforehand appeared first on Vacation Property Online.

If you want to know why these are the best places to own a lake house in Michigan, just keep reading. 

Traverse City

Traverse City is located on the Northwest edge of Michigan’s lower peninsula, and it’s only about a 20-minute driver from Suttons Bay, a famous bay with hiking, biking, picnic areas, and snowshoeing and cross-country skiing in the winter. 

Traverse City is a small town of over 15,000 people known for attracting foodies, wine connoisseurs and beach lovers. Summers in Traverse City typically have perfect weather; sunny but not too hot. However, winters can get quite chilly with freezing temperatures and dry winds. That’s why the ideal time to visit is from June to August. 

Besides Suttons Bay, Traverse City also hosts a City Opera House, several museums, and many wineries and wine trails. It’s a four-hour drive from Detroit, or, American Airlines, United, Delta, and Allegiant all fly directly into Traverse City. 

Statistics*

• Population: 15,570
• Median Age: 41.4
• Median Household Income: $57,076
• Median housing value:  $267,200 (+8.3% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Muskegon

Muskegon is one of the best places to buy a lake house in Michigan. Home to Lake Michigan’s largest port, Muskegon even has international trade to this day. The site has been functioning since 1849 as a major point of shipping through Chicago. The name Muskegon comes from Ottawa and means “marshy river or swamp”. Thus, Muskegon City has several museums, historic sites and parks. It’s grown considerably and has a population of just under 40,000 people. 

However, note that Muskegon average temperatures below freezing in the winter months and the highest temperatures in the summer are about 76 degrees F.

Plus, Montague and Whitehall (home to White Lake) are both within 20 minutes of Muskegon and make for quiet towns on Michigan’s coast. And, 20 minutes to the south you’ll find Grand Haven State Park, with sandy beaches on Lake Michigan, as well as Spring Lake. Or, Muskegon is only 40 minutes from Grand Rapids. 

For those interested in the lakes surrounding Montague and Whitehall or Grand Haven:

• White Lake. White Lake also dates back to historic times and was founded in 1838. The name also comes from Native Americans that called the lake ‘white’ or ‘clear’. White Lake is a booming tourist attraction, bringing in about 200,000 tourists every summer. White Lake is a popular spot for swimming, boating, water sports, and canoeing and kayaking. White Lake is just under an hour outside of Detroit. 
• Spring Lake. Spring Lake’s motto is ‘where nature smiles for seven miles, and it is one of the best places to buy a lake house in Michigan. For bicycle enthusiasts, Spring Lake has a 12-mile loop with gorgeous views right around the lake. Plus, there is plenty to do on the lake including canoeing, kayaking, fishing and swimming. In June, the town hosts the Spring Lake Heritage Festival, a time to celebrate the town’s history which dates back to 1849. Located a few minutes from Grand Haven, Spring Lake is a small, safe community. In fact, Grand Haven has been named one of the safest communities in America, according to FBI crime data. After all, there are under 3,000 people in Spring Lake. But, Grand Rapids has a population of about 200,000, so there won’t be a lack of amenities. Spring Lake also gets over twice the national average for snow each year, and summers rarely go over 80 degrees F, so if you want a lake house in Michigan that doubles as a winter wonderland vacation home, check out Spring Lake! 

Statistics (Muskegon)*

• Population: 37,633
• Median Age: 35.8
• Median Household Income: $32,433 
• Median housing value:  $80,300 (+15.1% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Holland

Holland is world-famous for its Tulip Time Festival, a homage to the city’s Dutch heritage. It has a small city charm with white sandy beaches, plenty of local cafés, and a small-town feel with big-city amenities. The town has nearly 34,000 residents, so it’s fairly medium-sized. 

Forbes has named Holland to their list of America’s Prettiest Towns and it’s been named one of the best places to live or retire by publications like U.S. News & World Report, CNN Money and TopRetirements.com. 

Holland experiences all four seasons with plenty of snow in the winter but also gets up to the mid-80’s in the summer. The town even has heated sidewalks and streets to keep residents and visitors safe from the snow. 

Statistics*

• Population: 33,402
• Median Age: 32.5
• Median Household Income: $57,002
• Median housing value:  $198,400 (+8.5% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Ludington

Ludington is close to Hamlin Lake, a sparkling clean lake with 5,000 acres of space to get your own private lake day. Fishing is popular year-round on Hamlin Lake, and in the summertime, visitors also enjoy swimming boating, and tubing. 

Ludington itself was considered one of the 16 best places to live in the United States by Outside Magazine. The city has a population of just under 10,000 and has enjoyable activities year-round. 

Plus, Ludington State Park boasts three campgrounds, sand dunes, a lighthouse, marshlands, wetlands and forests. The park is open year-round for hiking, classes, and tours. The park is pet-friendly, family-friendly and accessible so it’s easy for anyone to enjoy. 

Statistics*

• Population: 8,069
• Median Age: 43.9
• Median Household Income: $45,302
• Median housing value:  $117,500 (+6.9% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Houghton Lake

Located in the heart of northern Michigan, Houghton Lake is just 190 miles from Detroit or 130 miles from Grand Rapids. It does get pretty snowy in the winter, but the town takes advantage of that with winter sports. The lake is famous for fishing and in the winter hosts ice fishing and winter sports festivals on the lake. But there are also public beaches with swimming, playgrounds, BBQ pits and picnic areas to enjoy. 

Houghton Lake is also close to Higgins Lake, a crystal clear blue lake that you can swim and fish in, and Lake St. Helen, an all-sports lake with 2,400 acres of water to explore however you choose. 

Statistics*

• Population: 3,350
• Median Age: 55.7
• Median Household Income: $28,816
• Median housing value:  $95,800 (+4.6% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Marquette

Looking for a quiet community for your lake house in Michigan? Then Marquette may be a good option. Located on the upper peninsula (UP) on the shore of Lake Superior, Marquette is a quiet escape full of natural beauty. However, it still has plenty of amenities as it’s one of the larger cities on the UP. The area is known for its natural beauty, extremely friendly people, and rich heritage from nearly two centuries of mining.

Notably, Marquette also gets more snow, averaging 115”(about 10 feet) a year. So, if that’s a deal breaker for you, you might want to avoid the upper peninsula altogether. 

Statistics*

• Population: 20,822
• Median Age: 28.6
• Median Household Income: $43,977
• Median housing value:  $195,200 (+7.5% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

Munising

Munising is also a quieter place to find a lake house in Michigan. Located in the Hiawatha National Forest, the town has incredible views from the Pictured Rocks National Lakeshore and the Grand Island National Recreational Area. There are also plenty of waterfalls and dozens of natural wonders to explore nearby. You do not want to miss these breathtaking views and crystal-clear waters! 

Yet, with just over 4,000 people, the city has fewer amenities. It also gets plenty of snow on the UP, but in Munising, they make the most of it with snowmobiling. In fact, it’s the snowmobile capital of the world! So, if you don’t mind the snow and more remote location, Munising has some of the best natural wonders in Michigan.

Statistics*

• Population: 2,200
• Median Age: 45.7
• Median Household Income: $36,250
• Median housing value:  $102,300 (+7.4% over past 10 years)

*Source: United States Census Bureau and BestPlaces.net

We hope you’ve enjoyed our list of the best places to buy a lake house in Michigan.

Have you ever considered buying a cabin in California? Or perhaps a lake house in Michigan or a beach house in Texas? Be sure to explore our Top Seven Best Places to Buy a Cabin in California, Top Six Best Places to Buy a Lake House in Pennsylvania and the Top Seven Best Places to Buy a Beach House in Texas.

The post Best Places to Buy a Lake House in Michigan: Our Top 7 appeared first on Vacation Property Online.

Owning a weekend home is an attractive proposition for many. Having the ability to leave at a moments notice to the country to enjoy some much deserved rest and relaxation may be reason enough. Or perhaps its the prospect of hosting friends and family at a place to call your own that attracts you. Perhaps even retirement planning enters the picture when buying a weekend home. Whatever the case, there are many legitimate reasons why it may be a good idea to buy a weekend home.

Before signing on the dotted line, however, there are certain items that you should consider beforehand given the magnitude of such a decision. In this article we explore the top 5 things to consider before buying a weekend home.    

(1) Is it Worth it (Costs vs. Benefits)

Its important to make a fully-informed decision and what better way to do so than by completing a cost-benefit analysis.

Will the prospect of regular weekend use of your new home and pride of ownership outweigh the costs of owning a weekend home? In particular, how much can you reasonably expect to use the property? Assuming the best case scenario, would it still make more financial sense to rent versus own a place in your desired area?

As a starting point, calculate carrying costs assuming a 10, 20 or 30 year ownership horizon. Now calculate the costs of renting in your desired location over the same period and see where you end up. For illustrative purposes, let’s assume the following:

• You are considering purchasing a 1,500 square foot cabin for $250,000, with 20% down on a 30 year mortgage and 4% interest rate.
• You plan on using the cabin for 30 days a year and comparable cabins can be rented for $200/night.
• Instead of buying a weekend home, you could invest the 20% down payment ($50,000) in the stock market for 30 years and expect a 6% return

The calculation would look something like this (without accounting for inflation):

Scenario #1: Buying a weekend home

• Initial down payment: $50,000
• Total mortgage payments over 30 years ($954.83 monthly): $343,739.01
• Total costs over 30 years (repairs, insurance, property taxes, etc. assuming annual 2% of the home value in maintenance costs and 2% in major repairs): $300,000
• Total value of cabin after 30 years (assuming 3.4% annual appreciation): $681,641.73
• Net gain/loss after 30 years: –$12,097.28

Scenario #2: Regularly renting a weekend home

• Total rental payments over 30 years ($6,000/yr):  $180,000
• Initial investment: $50,000
• Total value of original $50,000 investment in stock market after 30 years (assuming 6% annual return): $287,174.56
• Net gain/loss after 30 years: +$57,174.56

In the above scenario, it doesn’t appear to make financial sense to buy. Yet, if the cabin appreciates even 0.5% more annually, the result is another $100,000 in equity after 30 years. While its difficult to forecast such amounts with any degree of certainty, the above example should still serve as a useful guide in understanding the financial implications of owning a weekend home.

Regardless of whether or not it makes more economic sense to rent vs own, does ownership fit into your overall financial picture?

Owning a weekend home can have significant implications on your long-term finances. Talk to your financial planner to see if you can afford to buy a second home. For instance, purchasing a weekend home close to retirement may make sense especially with cash in the bank and a full pension on the horizon. It may similarly make sense for a younger couple to buy a vacation home in their prime earning years so that they can service the mortgage payments.  On the other hand, buying a weekend home before completing much needed renovations on your primary residence may not make the most sense. Ultimately there is no “one size fits all” approach and therefore its important to understand the overall financial implications of buying a weekend home. 

While owning a weekend home may be a good investment over the long term, the decision to buy is often made for other reasons. In particular, its important to acknowledge that the decision to buy a weekend home is often driven by an emotional desire to own. After all, can you really put a price on family memories at the cabin or the ability to recharge at the beach house at a moments notice? For some, these may be reasons enough to justify purchasing a weekend home. For most, however, financial considerations will also weigh heavily in the decision making process. 

The results of a cost-benefit analysis will undoubtedly be anything but black and white. By conducting such an analysis, however, it will help you better understand whether owning a weekend home is right for you.

(2) Consider the purpose of buying a weekend home

What is your motivation for buying a weekend home? If you’re buying primarily for investment purposes then you will have a different set of criteria from someone looking to buy as a place to eventually retire.

Similarly, if you’ve always dreamed of owning a second home to pass down to your children then you may not be overly concerned with the financial implications of ownership. If you are a true “weekend warrior” and plan on using your second home on weekends-only then you will yet again have different criteria to consider.

For those weekend-only users, perhaps a turn-key property is the best choice. Otherwise, it may not be worth the time spent fixing and maintaining your property relative to the amount of time you will actually use it. Further, if you will be primarily using it as a place for rest and relaxation, then perhaps a more rural setting away from the city will better suit you. If you’re an outdoor enthusiast then somewhere close to the beach, river, hiking trails or mountains would be obvious choices. Ultimately, in order to get full value out of a weekend home, as with any vacation property, you should ensure that it ticks all of the boxes, including location, facilities and amenities. 

(3 ) Consider distance, travel time and accessibility

Given that you will be only using your weekend home for short stays, travel time, distance and accessibility will all be important considerations. Ideally you will want a weekend home that is no more than 2 to 3 hours away, which rules out airline travel. Similarly, any time spent waiting at border crossings, ferry terminals or train stations will need to be taken into account.

Part of the draw of owning a weekend home is being able to leave at a moment’s notice and that may not be possible if you are reliant upon transportation methods that require advance planning. 

From an accessibility standpoint, are access roads, ferry services or other transportation methods available year-round? If not then you likely won’t be able to use the property for extended periods of time.   

For borrowers in the United States, keep in mind that a vacation home must typically be located at least 50 miles away from your primary residence in order to enjoy the “second home” classification that is coupled with a lower interest rate. For borrowers in Canada, similar considerations need to be taken into account. For a more detailed overview of these requirements, click here.

(4) Consider the local climate and seasonality

Its important to take into account any seasonal limitations when purchasing a weekend home. Owning a weekend home with year-round use will certainly be more attractive to ensure that you maximize use. On the other hand, owning a seasonal property that is only accessible during the summer months may be more difficult to justify, especially if you are typically on vacation elsewhere during such period thereby limiting the amount you can use your weekend home even further. 

You will also need to consider the required maintenance on the property as a result of local weather patterns. A ski chalet nestled in the mountains will require regular snow removal and upkeep. Similarly, an oceanfront house located in a jurisdiction prone to hurricanes will require regular care and maintenance, often at a moments notice. If your weekend home will remain empty for extended periods then appropriate arrangements will also need to be made to ensure that the property is maintained in your absence. 

(5) Will you be renting it out part time? 

If you are planning on renting out your weekend home part-time, keep in mind that weekends typically command the highest prices for short-term rentals. Further, there may be minimal demand for weekday rentals. Do your research ahead of time to get a better understanding of rental demand in the area. If you plan on using the home most weekends during peak season then you may not be able to rely upon much rental income during shoulder season. Alternatively, perhaps there is healthy demand locally for monthly rentals during the slow season which will help offset carrying costs.

Other things to keep in mind before renting out your weekend home include:

• Increased risk profile from lender’s perspective. As rental properties are often seen as higher risk, more stringent qualifying criteria may apply than if the vacation home is for personal use only. 
• Increased borrowing capacity. Depending upon the lender, they may give you credit for up to 80% of the projected fair market rents. 
• Tax implications. In the United States, the IRS uses specific thresholds to distinguish between a vacation home that is rented out part time and an investment property. In Canada, renting a vacation property more than occasionally could trigger a “change in use” of that property for income tax purposes. For a more detailed overview of these rules, click here. 

Quick hits: other items to consider

• Be sure to stay in the area before buying to ensure you enjoy the surrounding area.
• Having secure storage available at your weekend home will be useful if you want to avoid packing, and transporting, all of your gear every weekend.
• Similarly, having in-suite laundry will be useful if you want to avoid packing linens, towels etc.
• Is cell phone and internet service available? For some people, staying connected on weekends will be important whereas others may wish to completely disconnect. 

Is owning a weekend home right for you?

If you set realistic expectations regarding the costs and benefits of owning a weekend home, then buying a weekend home may be right for you. Its unavoidable that part of the decision will be an emotional one, which heightens the importance of fully-understanding the financial implications of owning a weekend home as well as the amount of time you can reasonably expect to use and enjoy the property. With proper consideration and planning, owning a weekend home can be a rewarding experience, both financially and from an overall enjoyment perspective.  

The post Buying a Weekend Home: 5 Important Things to Consider Beforehand appeared first on Vacation Property Online.

 General Requirements

While certain lenders may require a down payment of only 5% for a primary residence, many lenders in the United States and Canada will require a down payment of at least 20% for a second home. This is because second homes are inherently more risky as borrowers are more likely to default on repaying the mortgage on their second home. After all, borrowers faced with financial hardship will typically prioritize repayment of a mortgage on their primary residence as they need a place to live.

Using 20% as an example, if you’ve managed to save up $50,000, then the maximum vacation home you can afford is $250,000 ($50,000 / 20%) regardless of your overall financial picture. If you’ve managed to save up $100,000, then you can afford a vacation home with a purchase price of up to $500,000.

Yet these are just general rules of thumb and, depending upon the use of the property, there may be certain lenders willing to accept a more modest down payment. In order to provide more specific information, we have included more detailed guidelines for borrowers in the United States and Canada below.

United States Requirements

The size of your down payment will depend, in part, on the type of mortgage you choose. Each mortgage type will have its own guidelines and eligibility criteria to consider. Briefly, the following types of mortgages may be available to you:

• Veterans Affairs (VA) loans – VA direct and VA-backed Veterans home loans are only available to Veterans, service members, and their survivors, typically with no down payment.
• Federal Housing Administration (FHA) Loans – FHA loans are another government sponsored loan program that has been around since 1934, characterized by low down payments (as low as 3.5%), low closing costs and easy credit qualifying. FHA loans, however, are only available for primary residences.
• Conventional Loans – unlike VA and FHA loans, conventional loans are not guaranteed  or insured by a government agency. For conventional loans (and FHA loans), mortgage insurance may be required with a smaller down payment (i.e. less than 20%).

Conventional loans are often available for vacation homes but mortgages for such properties are typically accompanied by larger down payment requirements (at least 20%), higher interest rates and more conservative lending guidelines. If you intend on renting out your vacation home, then a lender may consider it as an “investment property” (as opposed to a “second home”), which tend to have even higher interest rates and down payment requirements (i.e. 25% or more). The reason for this is the risk profile of an investment property as owners may be more willing to walk away from their mortgage payment obligations when faced with financial hardship. To summarize, depending upon how you use your vacation home, expect to save at least 20%-25% of the purchase price as a down payment.

Fore more information on vacation home mortgages from America’s “big four” banks, click on the following:

• JPMorgan Chase
• Bank of America
• Wells Fargo
• Citigroup

Canadian Requirements

In Canada, down payment requirements for primary residences differ depending upon the purchase price of your home. Amounts range from 5% of the purchase price for homes $500,000 or less up to 20% of the purchase price for homes $1 million or more.

The rules also differ for vacation homes, in particular as between vacation homes purchased for personal use versus vacation homes used as a rental property.  As rental properties are often seen as higher risk, more stringent qualifying criteria may apply than if the vacation home is for personal use only. As outlined by National Equity Lending, you may still be able to buy a second home with as little as 5% down with the relevant insurance premium added to the mortgage. With 20% down, most lenders will finance your mortgage as a conventional loan. For rental properties, however, you will likely need at least 20% down and even then you are limited to only a few lenders who are willing to lend to you with no insurance premium added to the mortgage. In order to avoid insurance premiums and open it up to a larger pool of lenders, you will likely need at least 25% down.

Fore more information on vacation home mortgages from Canada’s “big five” banks, click on the following:

• BMO
• CIBC
• RBC
• Scotiabank
• TD

Advantages of a Higher Down Payment

A larger down payment has several advantages, including:

• More borrowing options
• Better interest rates
• Higher initial equity position
• Lower mortgage payments

Simply put, the higher the down payment the more loan options will likely be available to you at more competitive rates. By putting 30% down, for instance, lenders lower their risk profile by allocating some of the risk to you as the borrower. The thinking is that by having more “skin in the game” so to speak, you will be less likely to default on your loan. Also, your mortgage payments will be lower since you will be borrowing less money thereby paying less interest over the life of the loan. Further, if you intend on renting out your property then it will be easier to turn a profit since the cost of servicing your mortgage will be less.

Before deciding on a larger down payment, be sure to use our vacation home mortgage calculator to better understand the monthly costs of servicing your mortgage based on different down payment scenarios. It’s also a good idea to keep some savings left over as you may need funds for necessary maintenance and repairs following your purchase.

For more information on vacation home affordability, be sure you read our article on How Much Vacation Home Can I Afford?

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• writing down some of the top priorities that will guide you through buying the best property that suites your needs.
• preparing a list of features that will help you narrow down the best property that fully meets your specifications.
• hiring a realtor to help you find the best water access only property for you.

But buying water access only property comes with its own unique set of considerations. In this article we highlight some of the top things to consider before buying water access only property.

1. Will the bank lend you money to buy the property?

The unique attributes of water access only property makes it difficult to access a mortgage. In particular, banks are less inclined to lend money to homeowners borrowing money to buy boat access only property as very few people are interested in buying these kinds of properties in case the homeowner defaults on their payments. Water access only properties have lower demand and finding buyers to resell the property to may be difficult. It is therefore important that you determine if you can get a mortgage from a bank to finance boat access only property (assuming you require a loan). For those banks that are willing to lend you money, be sure to review the terms and conditions of the mortgage to ensure that you do not run into any last minute issues at closing.

2. Insurance costs

Water access only properties may require higher insurance costs for a number of reasons. For instance, they often sit unattended for extended periods of time and go without necessary repairs for longer periods as well. They are also exposed to higher risks of weather related issues such as flooding or hurricanes. Due to these increased risks, insurance premiums are often much higher. Accordingly, it will be important for you to ensure that you account for these costs when crunching the numbers.

3. Access

One of the major things that you need to consider when buying a water access only property is quite obvious: its accessibility. Most of boat access only properties are located in remote places away from the city so it is important that you determine how the property will be accessed from time to time. Are ferry or water taxi services available to the property? What about moorage for your boat? Is it accessible by float plane? Accessibility is perhaps the most important consideration when deciding on what water access only property to buy. There are any number of ways to access such a property but they all differ in terms of cost and convenience.  In short, you should only buy a property once you have identified convenient and affordable means to easily access the property.

4. Local amenities

Water access only properties are mainly located in secluded areas and may be difficult to access some of the local amenities for day-to-day services. If this will also become your primary residence, then it is even more important to consider accessibility to local amenities such as hospitals, schools, restaurants, shopping malls, fire halls and financial institutions among other facilities. Do some research as you walk through the neighborhood to familiarize with the distances you may need to walk, drive or boat before you can access these amenities. If the closest grocery store is an hour away and you’re hoping to play dinner host to friends and family often then perhaps its not the right property for you.

5. Utilities and environment

You will also need to determine the overall environment you are looking for in a water access only property. Are you looking for a beach house on the water with full access to power, water and sewer utilities? Or perhaps you are looking to disconnect from busy city life and are better suited to own a remote lakefront cottage with no such access? Access to utilities can greatly change the use and enjoyment of a boat access only property so its important to determine exactly what you’re looking for in this regard.

Other environmental considerations may include regional weather conditions, seasonality, landscaping and other factors. If you purchase a property as a summer escape then perhaps you’re not concerned that its inaccessible during the winter months. If, on the other hand, you want to use the property year-round then be sure you understand how your use and enjoyment may change throughout the seasons. What is the overall layout and landscape of the property? Will your entire family get to enjoy it? Long, steep stairs will be difficult for elderly people and small children as will an old rickety dock.

6. Can the house be rented?

You may also want to consider renting out the property in the future. If you are only using the property part time then perhaps you may want to rent it out short term and recoup some of the maintenance costs. Or perhaps you’re looking to rent it out long term initially before using the property yourself later down the road. Either way, do your research and see if the property can be rented out on either a short or long term basis. For instance, are short terms rentals legally permitted in the area? If so, how much could you expect to earn? Who will manage the property? There are also certain practical difficulties with renting out water access only property so be sure you consider all aspects beforehand.

7. Maintenance costs

Maintenance costs may vary substantially depending upon the type of property and the particular location. It is thus essential to determine these maintenance costs before buying the property. Weather, seasonality, building condition and access to power, water, and repair services are all factors that will impact maintenance costs. If a boat access only property is located on a remote island without access to power then it will be challenging to complete timely and affordable repairs. Waterfront property, especially property located close to the ocean, will also require its own unique set of repairs as mother nature does it work. For these reasons you should expect that the cost of maintaining a water access only property is higher.

Conclusion

Buying a water access only property presents its own unique set of considerations, beyond the accessibility of the property itself. Before embarking on your home buying journey, be sure to pay particular attention to the items discussed in this article. It is also important to work with a good advisory team, including a realtor, mortgage broker, accountant and lawyer, to help you through the process. Good Luck!

The post Water Access Only Property: Top Things to Consider Before Buying appeared first on Vacation Property Online.

If you’re dreaming of vacations on the lake with the family, owning a cabin or cottage can become a reality with a little planning and saving. A great way to help balance the cost of the investment is to rent out your cabin or cottage. Below are our top nine things to keep in mind before buying a cabin to rent out.

Top Nine Things to Consider Before Buying a Cabin or Cottage to Rent Out.

1. The Location and Accessibility

Over the last few years, the demand for cabin rentals is booming and the number of online rental platforms has exploded. But it takes more than a cabin or cottage with character to attract renters. The key to a popular cottage is location.

Proximity to water is the top criteria that cottage renters are looking for, and your property will be even more attractive if it’s also within a two-hour drive of a major center.

Cabins close to ski resorts are also in high demand. Additionally, if you plan on mortgaging the cabin, banks tend to look more favorably on rental properties that have year-round access and those that are winterized.

From an accessibility standpoint, a remote cabin in the woods may sound like a dream but it can be a logistical nightmare when buying a cabin to rent out. Before you buy, make sure you know all the ways you can access the property. Is it accessible by road or only by boat? Is it accessible during the winter? Do the roads get plowed in the event of snow? This is important to know so that you don’t end up with angry renters who can’t access the cabin or with a maintenance problem that you can’t tend to because of limited seasonal access.

2. Cellphone Reception and Internet Access

According to a recent Royal LePage survey, the most important factor when deciding to buy a vacation property is cell phone reception and internet speed. It’s with good reason too. While one of the draws of owning a cabin outside the city is to disconnect from regular life, most people want to stay connected to some degree. For a rental cabin or cottage, this is even more important for managing the guest experience. If questions arise during your guest’s stay or issues come up, you will need to have an effective means of communication. Lastly, many travelers will often wind down for the evening by watching their favorite show on Netflix or other streaming service. Without fast internet, this won’t be possible.

3. Access to Clean Drinking Water

Most of us probably take for granted the drinkable water that comes out of our taps every day, but this may not be the case with rural cabins or cottages. The risk of water problems and contamination is far greater in rural areas than in well-established cities. So, before buying a cottage to rent out, look into the water situation. If there is a well, the water will need to be regularly tested. In some cases, you may even have to bring with you your own clean drinking water.

4. Renovations

While a rustic cottage is great, a modern cottage with a newly renovated kitchen, internet, television, and hot tub is even better.

These days, renters are looking for the same comforts that they would find in a hotel.

Before buying your cottage, consider how much work you’ll have to put into it before it’s ready to be rented out. Are you confident enough to DIY the reno’s or will you hire professionals? How would renovations impact your budget? How long will they take before the cottage is ready for renters? These are all important questions to ask yourself before buying a cottage to rent out.

5. Rental Rules in Your Area

Before buying a cabin to rent out, be sure to find out what the rules are in the area. Short-term rentals are prohibited in some areas. For example, many California cities and counties have passed short-term rental ordinances to reduce problems associated with short-term rentals, including noise, parking, partying and trash. Similar ordinances have been passed in other states such as Colorado and New York. In the province of Quebec, there is an obligatory classification system for short-term rentals. This program costs owners roughly $250 annually. Out west in Whistler, BC, you will need to ensure that the cottage is properly zoned and obtain a tourism accommodation license. As the rules can vary wildly from state to state, province to province and city to city, its important to run this to ground before buying.

6. Advertising

Managing a rental property can be a lot of work, especially when you initially put the cabin or cottage up for rent. To increase the profitability of your rental cabin or cottage, you’ll need to have high-quality photos. Photos are what draw in travelers. They’re what makes potential renters decide whether or not to click on your listing to learn more about it. Having eye-catching photos can also inspire renters to save your listing to their Wish List on Airbnb. The more times your listing is saved to a wish list, the better your SEO ranking will be. Borrow a friend’s camera, if you’re unable to hire a professional photographer, and take photos when there’s lots of natural light in the space.

To increase your chances of renting, be sure to list your cottage on multiple rental sites, like Airbnb and HomeAway.

However, keep in mind that, depending upon the platform, there may be additional annual listing costs. Also, it may not be worth it to advertise on national or international platforms if your cabin or cottage is located in an area that doesn’t typically attract out of state (or province) tourists. Before signing up with any of these rental sites, do some research. Try searching on Google several keywords associated with your cabin or cottage and see what websites show up. This may help you decide where it’s worth listing.

7. Property Management and Maintenance

If you’re considering buying a cabin to rent out, you need to make sure you or someone you trust will be able to manage the property. This includes maintenance, mowing the lawn, cleaning, and even picking up or dropping off the keys. Without maintaining the property and being responsive to guests’ needs, you’ll likely accrue negative reviews, which could impact future bookings. If you’re unable to tend to the property yourself, research your options and the costs associated with a property management company. For remote properties, keep in mind that you may have relatively few options.

8. How Much You Can Rent Your Cabin or Cottage For

The price you can rent your cabin or cottage for comes down to a few factors. Firstly, location. If your cottage is in a desirable location, you’ll likely be able to charge a little more. Before buying, do some market research and compare your cottage to others nearby. That way you’ll be able to determine a somewhat-accurate price based on the desirability of the property in comparison to those around you. Second, what amenities and other extras can you offer your guests? Does your cabin include two bathrooms whereas most others in the area typically have one bathroom? Does your cabin include a canoe or kayak for guest use? Be sure to factor in any extras you may offer guests and fine tune pricing after you’ve received some bookings.

Importantly, once your cottage is open to renters, be sure to request a refundable security deposit. A hefty security deposit lowers the chances that you’ll end up with renters who abuse your equipment and furniture.

9. Insurance costs

Cabins and cottages tend to face higher risks for weather-related issues. For example, cabins in coastal areas are more likely to be hit by hurricanes or experience flooding. Cabins situated on islands are less desirable for insurers because they’re harder to get to. Your insurer must also be aware that your cabin or cottage is being used as a rental property, as you will need to update your insurance to a rental property insurance policy.

We hope you’ve found these tips on buying a cottage to rent out useful. Be sure to explore our additional resources on buying a vacation home, including everything you need to know before buying a vacation home.

The post Thinking of Buying a Cabin or Cottage to Rent Out? Consider These 9 Things First appeared first on Vacation Property Online.