What to Consider Before Buying a Second Home

What to Consider Before Buying a Second Home

Buying a vacation home can be an exciting investment or expensive regret. More than a few have made the decision while sipping a glass of something cold, reclined in the sunshine and looking out at the view.

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Q: Every summer we spend time visiting an area with amazing scenery and a slower pace of life. We just love it there and could see ourselves retiring to one of the small homes in the community, so in 2019 we decided to buy ourselves a second home.

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Short-term rentals provided enough of an income stream to break even, with some people staying for two months at a time. We weren’t planning to live there full time for at least another 15 years, however our plans fell apart during the pandemic.

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Prices for everything went way up, the municipality tacked on extra fees and rules for vacation properties, then last year we faced a huge property-tax increase as well. We were very fortunate to be able to sell to a neighbour, but our dream almost turned into a nightmare. We still want to own a vacation home; what should we consider? ~Roger

A: Buying a vacation home can be an exciting investment or expensive regret. More than a few have made the decision while sipping a glass of something cold, reclined in the sunshine and looking out at the view.

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Whether it’s a boat, cabin, trailer or bare land, buying recreational property or vehicle as a second home is one of those decisions best made with the clearest of minds. Even then, as you’ve unfortunately discovered, there are significant variables beyond your control that can shatter your best-laid plans.

Here are some things to keep in mind if you’re considering the purchase of a second home, vacation property, or recreational vehicle: 

Separate the financial decision from the emotional 

There is a lot to consider when buying a vacation home or property, and while you’re on holiday is not the time to make the decision. With your down payment and/or purchase amount, as well as the ongoing costs, it is a major investment. Each property or recreational vehicle is a bit different, but from maintenance to repairs, licensing, property management fees, insurance, loan payments, and taxes, the hit to your budget can be substantial. 

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Take a step back and fully evaluate what the additional payments and expenses would mean to your current spending habits and lifestyle. Consider how often you would use it for travelling or how much time you would spend there.

Determine if it could generate any income to help cover the additional expenses or if every month, you’d be taking on an extra bill. It may help to speak with an accounting professional to learn more about how the various options would impact you come tax time. If you would be cashing out savings to make the purchase, speak to your financial adviser about the long-term implications to your retirement plans.

What Does It Mean to Set SMART Financial Goals? 

Test drive the change to your budget 

Once you determine how much the ongoing monthly costs would be, revise your household budget to account for that amount. Ensure that you’ve calculated a monthly amount for the additional annual expenses, such as property taxes and insurance. For instance, if you determine that it will cost you $1,300 extra each month, set that amount aside in a separate savings account for at least three months. During that time, live as if you’ve bought your second home or recreational vehicle. 

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If you anticipate generating any income with it, the monthly amount will only come down during the months when you’re able to generate the income. If there is a gap in rentals or at times when you choose to use it, there will be no income. This can happen unexpectedly so it is best if your budget can accommodate the full additional payment at all times. 

This test has two key benefits. You will either discover that it is too costly an endeavour and change your plans, or you will end up with extra savings. If you discover that owning another property is too costly, you’ve gained valuable insight into your financial situation. If you amass savings, it can go toward the purchase or remain as savings to tide you over when you face unexpected bills or cost increases. 

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How to Plan a Vacation on a Budget 

Research your options thoroughly 

Any worthwhile investment requires research. Speak to others who have more experience than you do with what you plan to buy. Join a social media group that shares your interests, and/or seek guidance from professionals. If you plan to rent your vacation home to tourists, the local tourism office can provide you with visitor data and trends. 

To safeguard yourself financially, it is critical that you contact any regulatory bodies that may make decisions that could impact your plan. For example, if you’re buying a vacation home that is currently being used for short-term rentals, contact the municipality to find out about their bylaws. Many have tightened up their rules or are considering removing short-term rentals entirely. If the property is governed by a strata corporation, check the bylaws and read through a few years’ worth of minutes as well. 

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Tips for What to Consider Before Buying Vacation Property 

If you know the area from past vacations, speak to residents to learn about the community from an owner’s perspective. Whether you are renting it or living there, research the availability of amenities, such as internet access, cellular signal strength, and home insurance. Proximity to food, supplies, medical facilities, and community services is equally important. Evaluate community resources both from the perspective of a visitor as well as a long-term, aging resident if you plan to make it your full-time home upon retirement.

Rental income aside, maintaining two homes means facing double the costs, furnishings, supplies, and effort. In addition, you may need to hire a property manager if you don’t live close enough to maintain it yourself year-round or a security company if it will be vacant when you’re not using it. Similar steps are necessary if you need to find space to store a recreational vehicle when you’re not using it. 

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The bottom line on buying a second home or vacation property 

Resist stretching your finances to the breaking point with an emotional purchase, rather than a wise financial one. If you feel that you could afford it, prove it to yourself so that an impulsive decision doesn’t lead to years of buyer’s remorse. Ensure that you’re on track with your financial goals before taking on a new commitment because should you change your mind, selling vacation or recreational property/vehicles can take longer than more traditional real estate. However, if you have found the right place and the extra costs fit your budget and long-term plans, you could be making a very worthwhile investment.

Related reading: 

Avoid the Summer-Time Blues, Affording a Vacation When Money is Tight 

What to Consider When Buying a Time Share 

8 Ways to Save Up a Down Payment for a Home or Other Big Purchase 

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.  


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