After their primary residence, many investors purchase a vacation home for enjoyment and even future retirement purposes. The property taxes and interest are tax deductible. The property can be rented for profit in the off-season; and owners can take depreciation on the home if they live in it less than 14 days a year.
To be considered a 2nd home you are not allowed to own more than two second/vacation properties. Any more than two second/vacation properties and you may have to consider it an investment property.
Additionally, often banks and mortgage companies will lend a lower LTV on a second home vs. a primary residence. Some of the factors that lenders look at when qualifying a home as a second home are:
Distance from the primary residence
Amount of personal use of the residence
Things to Consider when Investing
If you're considering buying and renting out a second home, ask yourself the following questions:
Are you ready to do the research?
You'll need to come up with a lot of numbers, including an estimate of how many weeks the property is likely to be rented and all your monthly costs (including, but not limited to, mortgage, insurance, property and sales taxes, advertising, maintenance, repairs and cleaning). Talk with a number of real estate agents and other owners in the complex or area about their experience with rentals so you can more accurately gauge the demand and income potential.
You'd be smart to get a tax professional's help to sort through the potential write-offs and what they could mean for your bottom line. You'll also need to research any local laws, covenants or property restrictions that could affect your ability to rent the property.
Are you willing to give up the use of your property during the peak season?
This is the conflict that keeps many vacation homes from being profitable. Demand for your property is likely to be the highest in the weeks your family most wants to be there.
Are you willing to put in the necessary work?
You'll be the one posting advertisements, answering e-mails and phone calls, screening tenants, hiring cleaning crews and calling plumbers. You may need to make some unscheduled, last-minute trips to the property if there's an emergency.
Can you hold on if things get tough?
Real estate prices are booming in most resort areas, but there's no guarantee that trend will continue. If appreciation slows or even reverses, it could take many years before your property rises in value enough to offset the substantial costs of buying and selling the property.
Vacation Homes and Second Homes in Maine
Maine is known as The Vacationland for good reason. With an abundance of lakes, mountains and oceanfront, there are many prime areas for possible investment in a vacation home or a second home. To assist in locating just the right location, you might want to consider some of tools listed below: