Beach Bungalows or Ski Chalets, Penn Community Bank Can Help Keep Vacation Homebuyers from Getting Burnt or Snowed Under

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couple on beach
Image via Jennifer Murray at Pexels.
A vacation home should not be a snap purchase, Penn Community Bank advises.

As quickly as a Nor’easter can wreck a beach trip or a run of global-warmed spring air can melt the enthusiasm of a ski weekend, a vacation home ownership dream can quickly become a nightmare.

With advice from Penn Community Bank, however, escapists seeking respite from their ordinary work-home-chores-sleep routines can slip away to a favorite spot with a sense of financial security.

Recommendations for weighing the decision follow.

Ask Yourself: Why?

The consideration of a second home for leisure purposes should begin with an easy question: Why?

What is the property intended to do? What are the goals?

If it’s to lay down roots in a favorite location, a long-view consideration is advisable.

 A dwelling nearby a major theme park, for example, might be ideal for a family with young children. But as those offspring grow and develop interests of their own, they may not be so eager for an extended time with meet-and-greet princesses and pirate-ship excursions.

If it’s to serve as a gathering point for an extended family spread across a wide geography, location is key in those circumstances as well. A few hundred miles of travel for siblings might be acceptable. But aging parents may eventually balk at hour-plus commutes.

Those looking to lure renters to their abodes should vet an area for year-round appeal. A beach spot like the Jersey Shore is wildly appealing in June, July, and August. But it’s rather bleak in February. And yet the mortgage payments will continue year-round, despite empty beds for months on end.

Become a Part-Time Native

The best way to “audition” a vacation home is to spend a lot of time there as a renter.

Short hops at various times of the year can illustrate several strengths a location has, while also opening purchasers’ eyes to drawbacks.

It can also reveal, amid the overall aesthetic of a site, locales that provide specific appeal.

Perhaps one end of a barrier island is better suited to fishing, while the other better accommodates swimmers. One community of rustic cabins may be closer to art galleries and restaurants, while another is nearer a lake suitable for zooming around on jet skis.

Multiple stays in multiple properties should reveal a spot workable for a purchasers’ interests, preferences, and wallets.

Stay in — or Under — Budget

The financial caveats this series of posts warned about not overbuying a full-time residence. That advice applies to obtaining a vacation residence as well:

  • Run the financials
  • Separate potential properties’ nice-to-haves from need-to-haves
  • Stick to the lower end of what the budget can bear
  • Avoid bidding wars
  • Consider all costs (down payment, closing, taxes, insurance, HOA fees, repairs/maintenance)
  • Build equity

This assessment applies especially to vacation homes. Nothing ruins a relaxing time away than fretting about a getaway’s continued hit to family finances.

Tax Time: Uncle Sam (And Company) Will Have His Hand Out

Taxes associated with a second home are more complex that with a primary residence:

  • Rental income is taxable
  • Property taxes can be hefty:
    • Their locations often levy higher tax rates to support tourism amenities
    • The house’s use as a secondary (not primary) residence changes the taxes levied against it

Low-Ball Rental Income Expectations

It’s a common mistake to think that purchasing a resort condo or other multiroom accommodations is going to be a gold mine. Or at least pay for its own mortgage.

Ideally, yes, owners can gain a rental property that becomes a net-zero impact on their personal finances.

In fact, the current leisure economics of today favor owners, not tenants.

Many markets, particularly towns “down the Shore,” are overflowing with eager renters, looking at this summer as time-at-last to break free safely from COVID-19 travel restrictions. Summer 2022 rentals in New Jersey (and their lease payments) are up, at least anecdotally.

But the current bull market won’t last. They never do.

Once occupancies return to normal, monthly expenses in maintaining a vacation home may once again swallow profits and cause owner finances to wobble.

Even something as utilitarian as maintenance can eat away at profitability. Shore homes are often battered by high winds, salt water, and blowing sand, apart from wear-and-tear from even the most careful renters.

Pocono homes can be buried in snow, whose removal resort HOA fees must cover with owner payments. And inside, extensive winter use of the home heating system to abate bitter wind chills can shorten its expected lifespan.

Similarly, the home insurance tab can be costly. Second homes in hurricane or flood areas are pricey to insure. And as they sit unoccupied (as they invariably will), damage risks increase.

Trust an Expert

Before taking the leap of faith to purchase a residence at a vacation site of choice, an objective analysis of the purchase’s impact will reveal its suitability — or not — for individual borrowers.

An appointment with an expert, such as the real estate advisors at Penn Community Bank, is never a bad idea.

About Penn Community Bank

With more than $2.5 billion in assets and over 300 team members, we are the largest mutual bank in eastern Pennsylvania. Our size and reach make us uniquely qualified to help our customers reach their own “Here We Grow” moments for their families, their businesses, and their communities.

We’re here to partner with community organizations leading the charge for positive momentum. Our growth mission is to deliver solutions that genuinely serve the best interests of our individual and commercial customers in ways they cannot possibly experience at more traditional financial institutions. As a bank powered by good values, we are a catalyst for good with the flexibility, responsiveness, and experience to guide next-level growth for everyone we serve.

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