Financial Facts: Vacation homes are not just for the rich & famous
December 23, 2012
Being able to live here in the High Country full time, I feel like I am one of the lucky. The views, the activities, the climate. But what about those who are not as lucky as I am? Buy a vacation home and rent it when you and your family are not using it. Owning a vacation home is a dream of many people who do not have the ability to live here. And the big concern of many of these buyers is how can I afford to pay for a vacation home? Can I afford to let this wonderful property sit and gather dust for most of the year? I am not rich or famous and having a vacation home can be more of a liability than an asset.The solution is rent out the property when you are not using it. Renting the property may mean that you reduce your annual costs of ownership, but if you do it right, you just may have a performing asset that accomplishes two things: a vacation home for you and a profit center. Done right, I see owners breaking even and some even make a small profit with their vacation home.As an example, let us look at a vacation homeowner, Mr. Cliff Hanger. Cliff came into some money a few years ago and decided to take part of this cash and diversify his investments to include a vacation home. Cliff is an avid fly fisherman, so he looked for a property close to a mountain river. In the winter Cliff loves to go out snowmobiling. The High Country was a perfect fit for his plans. Mr. Hanger purchased a vacation home for $460,000. He made a down payment of 20 percent, $92,000 for those of you without a calculator handy. He obtained a mortgage of 4 percent on the money he borrowed – a monthly payment of $1,757 a month. His monthly home owners association (HOA) fees run him another $225 a month. So his fixed base monthly costs are $1,853. Multiply that by 12 months and his annual costs are $23,784. Cliff has decided to rent out his vacation home for part of the year as he wants to try to break even on his costs and still enjoy the home for a few weeks a year, plus numerous weekends too. He has placed flyers in all the break rooms at his place of work down in the Front Rage office and he has placed ads on the numerous Internet sites set up for vacation property owners to advertise. The rental for this unit is $1,200 a week for the prime winter weeks and $800 a week during the summer months. So if Cliff Hanger only rents his vacation home for a few weeks in the winter months and a few weeks in the summer months, his overall costs will make the home fit right into his budget. So Mr. Cliff Hanger has diversified his investments by adding a vacation home. He has offset most of his costs of owning the vacation home by renting it out part of the year and he will get federal tax benefits to boot when he files his taxes. And finally, Mr. Cliff Hanger is not rich or famous; he is just a wise real estate investor. For answers to your mortgage related questions, call Bob Kieber at (970) 453-4700 or email him at firstname.lastname@example.org. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Centennial Bank.