Is It Wise to Invest in A Vacation Home?
posted in Mortgage News
Purchasing a home to be used for vacationing purposes can be a smart investment, especially if you choose to rent it out for certain periods of the year. On the other hand, some Canadians aren’t concerned as to whether it’s a good way to spend their money, they simply want a home for friends and family to be able to gather together in during the holidays.
For those who are thinking in investment terms, here are a few pointers and considerations to make, to help you determine whether a vacation property is a wise purchase:
Think long and hard about what stage in life you’re at
Don’t just think about the reasons why you want a vacation home, think also about your other financial commitments. If you’re raising a young family, for example, while you might have the funds to buy a second property now, with the cost of living rising and young mouths to feed, clothe and educate, will you be able to cover the mortgage payments as the years progress?
Do you vacation a lot as a family, and if so, how much do you spend on average? Will a vacation home save you money on hotels and the like, or leave you with less money to spend when you do get together as a family?
The point in your life that you’re currently at, can help you put the decision to buy a vacation home into perspective, and force you to closely examine your finances.
What are the advantages of renting out your vacation home?
With vacation homes growing in popularity and the introduction of sites such as Airbnb to help travelers find affordable accommodation, renting your second home could prove profitable, or at least help you recoup or offset some of the costs associated with owning it. Rentals give tax deductions on various expenses such as mortgage interest, insurance, maintenance and repairs.
Additionally, as with owning any other property in Canada, you may well notice an increase in equity or appreciation, and can expect your vacation homes value to rise over time, making it a wise, long-term investment strategy.
What are the disadvantages of renting out your vacation home?
While the pros mentioned above might make it seem as if buying a vacation home and renting it out is profitable and always a smart move, there are some expenses associated with it, that it’s important to think carefully about.
Even if you’ve accounted for such expected costs, as utilities, insurance, mortgage payments and taxes, etc., there’s always a possibility of unexpected fees being added on, whether these are related to maintenance, repairs or anything else.
Buying a vacation home is a big financial step to take, and owning one is a big financial commitment, too. Many find it helpful to consult with a local mortgage broker when considering their options, and to determine whether purchasing a vacation home is a sensible investment for you, you’re strongly advised to seek guidance from an experienced broker, who can make sense of the pros and cons, without the confusing jargon and pressure of a financial adviser.