Should Snowbirds Buy Winter Nests?
When
brutal winds and blizzards blow across northern and middle America, who doesn't dream of packing up and heading south to be warm for the winter? If you do that, your
first encounter with the brilliant sunshine will promptly infuse you with
Vitamin D and a mad desire to run out and buy your own place there.“It
will be a great investment,” you assure your spouse. “We’ll have free vacations
every winter instead of paying high rents, and when we can’t travel anymore,
we’ll sell it and get all our money back and then some.”It’s
the American dream of the 50-plus set. But
it doesn't always have that happy ending.While there are many
valid reasons for snowbirds to make permanent nests in the sun, if it’s simply
an investment you are after, you would be better advised to accumulate a
diversified portfolio handled by an experienced and trust-worthy financial
planner.
If you are really
honest with yourself and admit you are just looking for a place where you can
leave your beach chairs and snorkeling gear and won’t have to deal with
annoying agencies and individuals who handle seasonal rentals, however, you are
starting with the right mindset.From there, you need to
consider three essential components that will make your vacation home a good
buy, defined as one that won’t cause you to lose money and which might yield
modest profits someday.
From there, you are
down to the three pivotal purchase points:
-
Location factor.
-
Taxation factor.
-
Vexation factor.
Location
When you buy a
warm-weather hideaway with the idea of selling it again in the future, it’s
wise to consider what most people think is attractive. For quick reference,
that is beaches, mountains, and golf courses, although none of them ensure
resale value. Beaches can get washed out by storm surges and golf courses can
be abandoned by developers, so investigate weather patterns and the stability
of the golf community management. Mountains are rarely moved.
The safest investment,
location wise, is near a mega tourist attraction like Disney World or the Grand
Canyon. For example, homes in the Kissimmee area of Florida which are near
Universal Studios and Disney World have climbed up 35 per cent in the past
year.
Next in importance to being
in a high tourist zone is selecting a house in a well presented neighborhood. It doesn't have to be a rich street; just well cared for with lawns mowed, flowers
planted, houses painted and fences mended. If you have a beautiful home but all
the places around you look like time forgot them, your vacation haven will
slide down in value.
Taxation
Deciding who is
going to live in your retirement home also impacts how good an investment it
will be when it comes to taxation.
According
to the IRS, whether you rent out your vacation home makes a big difference in
your taxes. If you rent it for a maximum of two weeks each year, you can deduct
your mortgage interest for the property, and fully deduct the home’s property
taxes from your gross income.If
you rent the home and use it personally as well, you can only deduct your
operating expenses if you lived in the house less than 10 per cent of the days
you rented it, or for less than two weeks. If you meet the criteria, you can
deduct all your home operating expenses such as lawn care, cleaning, utilities
and even property management fees.
The
IRS has an excellent information sheet available on renting residential and
vacation property. You can view it at http://www.irs.gov/taxtopics/tc415.html.
Vexation
Remember that
one of the reasons you fall in love with a particular warm paradise is that you
are on vacation. The translation of that is you are doing as little as possible
other than activities that help you enjoy yourself. You are sitting on beaches,
enjoying fruity drinks with umbrellas in them, and dining out in pleasant
restaurants.
What
you are not doing is fixing drainpipe, mowing lawns, painting bedrooms and
trying to repair broken air conditioning units.Investment
is about your time and your happiness as well as your money. Do you want to
spend your time in the sun ensuring that your “investment” holiday home is in
good repair? How much vexation can you handle before what you thought would be
fun turns into just another job? Do
you love the community where your house is, or do you have a personality that
gets bored easily and continually wants to visit new places? It’s often a good
idea to rent for a longer period of time before you buy, just to make sure that
you really do feel comfortable and contented in your holiday community.When
you make up your budget to buy, are you adding in those vexing added expenses
like new furnishings, home owner dues in various communities, and insurance costs?
Speaking
of insurance, have you checked that the property is not in a flood plain or
cannot be insured for some other reason? Many a snowbird has picked up a sweet
little double-wide hideaway in a vacation community only to discover that the
cost of insurance is so high that they will take their chances there will be no
hurricanes for the duration of their ownership.
Setting Your Budget
If you consider
all of these factors and decide a vacation home is still something you want to
own, determine what you can afford to pay before you allow yourself to fall in
love with a property.Consider
if you will need to take out a mortgage on the vacation home and be aware that
your down payment and mortgage interest can be higher on your second home than
your principal residence. Check with your personal banker to find out how much
money they can reasonably make available to you.Set a
budget for home repair that includes an immediate emergency fund for thinks
like leaky roofs or broken air conditioning systems.Another
budget item is the cost of travelling to your vacation home multiplied by the
number of times you plan to visit there each year.
Armed
with this information, consult your financial planner to obtain his or her
advice on how all of these factors will impact your overall wealth management
plan.
Only
then can you make a good decision on whether to buy or continue renting your
vacation property.
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