Post details: Owning a Vacation Home


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Owning a Vacation Home

Karin Price Mueller
How one ordinary American bought a second home.

You don't have to be rich to buy a vacation home. My husband and I learned that when we bought a house in the White Mountains region of New Hampshire in a partnership with my sister and our parents.

But what you do need is a sense of adventure (because things will go wrong), a healthy emergency fund (for the exact same reason) and a good accountant (to make sure nothing goes wrong with the IRS).

Here's how we gave ourselves the one real luxury in our lives, a vacation home that works to pay some of its own costs.

Select Property with Yourself and Your Renters in Mind

Our property is a great home in an area that's popular with tourists in the winter for skiing and in the summer for local nature and theme park attractions. The year-round attractions are key to the cost equation. If your home will draw renters only for a few months of the year, your rental income will be limited.

When you evaluate the features of a vacation home, balance your wants and needs against the expectations of potential renters. If you love big open windows with no curtains, for example, realize that not all renters will be as comfortable living in a fishbowl.

Prepare for Mortgage Challenges

If you're planning to take out a mortgage instead of paying for the home outright, you'll have to do some shopping. Getting a mortgage for a vacation home can be a lot more trouble than getting one for a primary residence. You might be required to make a larger down payment and pay a higher interest rate, in part because lenders believe if you run into financial trouble, you're more likely to default on your vacation-home mortgage than your primary one.

InsuranceBuy the Right Insurance

When we bought our vacation home, I told the insurance broker that we planned to rent it, fully furnished, for short-term rentals -- weekends and weeklong stays. Because the broker is known for writing policies in our development, I trusted him when he said he knew the kind of policy we needed. I glanced over the policy but didn't give it a thorough reading.

So when someone broke into the house and stole two televisions and a VCR, I learned the hard way that the contents of the home weren't covered under the policy. The entire house could have burned down, and we would have been out four bedrooms worth of furniture, plus everything in the dining room, the kitchen and so on.

I immediately changed brokers and got a new policy -- which I read twice before signing.

Expect the Unexpected

Even if you have a management company keeping an eye on your house when you're not there, things can go wrong. A hot water pipe in our kitchen started leaking, and eventually the lower floor's bathroom, directly under the kitchen, had its ceiling collapse from water damage. Water also seeped into a closet and the laundry room and onto the basement carpet (insurance covered this one).

I thought we were lucky. Our neighbors, who don't use a management company to watch their house, had mushrooms growing in their basement for three months after a flood before anyone noticed.

Better Homes and Gardens



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