A Place to Call (Our Other) Home – Part One
by Sequoia Financial Group
by Sequoia Financial Group
Part One: Is a Vacation Property Right for You?
Summer is officially underway, and many people are rushing to book vacations. One of the most essential components of any vacation is where to stay. Buying a vacation home that you intend to rent for part or all of the year is a unique investment strategy because it offers a degree of personal enjoyment and the potential for financial gain.
If making a profit is a primary goal, you must ensure your purchase makes sound financial sense. You’ll need to assess whether projected rental income will cover the total cost of owning the vacation property or whether the anticipated appreciation of the property will adequately offset any operating losses you might suffer. Such an assessment will require understanding the relevant tax laws, the real estate market, and the area where your vacation home is located.
How do you choose vacation property?
Find a place you will enjoy
If you’re investing in a vacation home, you’ll want to find a property that will provide pleasure and value. Most vacation homeowners prefer locations that fit their personal and recreational interests; skiers tend to flock to the slopes, golfers to golf resorts, nature lovers to the mountains or desert, and water sports fans to the ocean, lakes, or rivers. So first, define your interests.
Next, consider travel distance and cost. Choose a location that’s not too far or too expensive. If you plan to spend weekends at your vacation home, travel the distance on a Friday afternoon to see whether the drive will be manageable.
Finally, before you decide to buy, rent in the area several times (during different seasons, if possible). This way, you’ll get to know the region’s lifestyle firsthand. This will also allow you to tour properties for sale and consult other nearby property owners about local attractions, the crime rate, and future community plans.
Choose the style of property
It would be best to consider which property styles best suit your needs. If upkeep and security are concerns, a condo may be preferable. On the other hand, a single-family dwelling may be more suitable if you desire privacy or plan on retiring to your vacation home.
Determine if the purchase makes financial sense
You may find the perfect vacation for personal reasons, but you must decide if it’s a suitable investment as an investor. First, determine whether the vacation property you are considering buying is priced reasonably. Check real estate ads and ask local real estate brokers for prices of comparable vacation properties in the area.
Next, you should consider the anticipated growth in the property’s value. This can be difficult since you’re trying to predict the future. However, here are a few things to think about:
- Is there growth potential in the area, or is the area already built up or overbuilt?
- Is the area coming into favor with vacationers?
- Are you planning to improve the property significantly?
Finally, analyze projected cash flow. Will the expected rental income meet your expenses? Here are some things you will need to consider:
- What is the supply and demand for rental properties in the area?
- What rent is being charged for comparable properties in the area?
- How many days can you rent out the house during the year?
- How much will your annual expenses be?
Conclusion
When analyzing whether a vacation property is a good investment, there are many things to consider. Luckily, a Sequoia Financial Group advisor is just a click away to help you determine if it’s the right move for you and your family.
The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.
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