While most of us have been cooped up in our apartments and houses, it may have crossed your mind that now would be the ideal time to finally purchase your dream vacation home. After all, mortgage rates are at all-time lows and a change of scenery probably sounds pretty sweet right about now.
Remember, however, that we’re living through a time of economic uncertainty. You could lose your job or find yourself up against a major financial challenge in the weeks or months to come. So, is this really a good time to take the plunge on a second home? The answer depends on your individual financial situation and your plans for the future. Here is some expert advice to help weigh the pros and cons of investing in a vacation property right now.
Con: This could be a risky time to buy…
Although real estate is one of the soundest investments you can make, you have to make sure you have the tolerance for risk that comes with it. If you think you’ll be ready to sell off your second home in just a few years, you should probably hold off on buying and instead rent your dream destination. If you only plan to keep the property for the short term, you’re more likely to expose yourself to risk and market volatility when it comes time to sell; who knows if your home will retain value during the next few years?
Pro: With low-interest rates, now could be a great time to invest
Purchasing a second home might make a lot of sense for those with stable incomes. Lower interest rates have boosted purchasing power, and for those who have ‘buy-and-hold’ mentalities, there likely has not been a better time to buy. That means if you plan to purchase a property that you’ll keep for years to come, you’ll be in a good position to weather the twists and turns of a volatile economy in the months and years ahead.
Real estate always is a good investment if you have the proper financial strategy in place. Ultimately, if you’re unsure about it, talk over your situation with your agent and your financial planner to decide if now is the right time to buy. A professional real estate agent not only will walk you through the financial steps to ensure a good investment, but also will do their due diligence to ensure you’re investing in the right area with growth.
Con: Getting a mortgage has gotten trickier
Before the pandemic, lenders would run a few employment verifications before approving a new loan for a home buyer. These days, however, some lenders are running checks anywhere from seven to 10 times before approving a loan. If you lose any source of income during the buying process, that could jeopardize your ability to purchase a second home.
Pro: You can offset the cost of your vacation home by renting it
If you buy a second home in a popular vacation spot, you could tap into a new source of income by listing your place on sites like Airbnb and VRBO.
Just keep in mind that renting your home to vacationers comes with extra responsibilities, including maintaining the property, keeping photos and descriptions up to date, and cleaning between guests. The possibility of rental income also has a major COVID caveat: During the pandemic, travel restrictions and cleaning logistics have made renting more complicated for hosts. The bottom line: Be sure you understand what you’re getting into before you bet on rental income.
Con: The market where you’re buying might take a while to recover from the pandemic
You’ll want to do your due diligence on the area where you want to buy a second home. For instance, know what kind of travel restrictions are in place, whether you’ll be able to enjoy the natural beauty of the location, if the restaurants and attractions are closed, or if social distancing will dampen the appeal. Also, consider what this means for your property value. If the local economy is largely driven by tourism, will it resilient enough to withstand downturns that could then impact property values? Work with your agent and financial planner to evaluate an area’s risk before you decide to buy.
Pro: You don’t have to be a multimillionaire to own a vacation property
You might think that the idea of a vacation home seems out of reach, but it’s actually more feasible than you think. Second-home purchases are not just for high-net-worth individuals. There also are plenty of opportunities at lower price points for prospective borrowers, especially if you’re willing to expand your search beyond the main drag or to take on a few renovation projects. That means you might need to look for homes near the water instead of on it or to search for homes that need a little bit of updating.