Buying a Vacation Home as Your Next Investment
If you have a lot of equity in your present home and would like to put it to work by investing in more real estate, you are not alone.
The trouble is that because properties are so expensive in Santa Cruz, relative to fair market rents, it would take a large down payment to make a rental home here produce a break-even cash flow.
Besides that, unless you are really up for the challenge, a rental home can uck a lot of time, energy and money out of your life. Although in the right situation it can be an excellent investment, owning and operating a rental home is clearly not for everybody.
Fortunately, there is an alternative. How about buying a home that will increase in value over time but one that the family can enjoy in a vacation area? These homes are referred to as second homes or vacation homes. By lenders definition, a vacation home may not be located in the same area as the principal residence.
We are blessed in Santa Cruz because we can go in any direction and find fun and different areas to enjoy as getaways. Probably the most popular direction is to go east, into the mountains.
Although the Tahoe area was discovered by vacation homeowners long ago, there are still bargains there. The area can be enjoyed in each season throughout the year. The foothill areas of the Sierras and Lake Tahoe's surrounding communities offer some very nice settings and have more affordable price tags than the immediate Lake Tahoe area.
Buying another home in a more affordable area can make sense as one of your investment strategies. Unless you own real estate in addition to your home, you will not be able to take advantage of the appreciation that you have enjoyed unless you sell and move out of the area. Mortgage lenders and the Internal Revenue Service give home buyers and homeowners a break when they buy and own a vacation home. Where interest rates for rental properties are higher than rates for a principal residence, interest rates for vacation homes are the same as those for a principal residence.
To top it off, the IRS allows the same deductions for the taxpayer on a vacation home as on a principal residence. That is, mortgage interest and property taxes are deductible. This advantage reduces the effective house payment on the vacation home.
From a mortgage standpoint, the mortgage professional that you trust and have relied on for your Santa Cruz property is able and well qualified to provide the financing for any other property in California and surrounding states as well. Make your first stop at your mortgage consultant’s office to find out what the payments would look like for a vacation home.
Ask your Santa Cruz real estate agent for advice too. While he or she may not be able to help you locate a property out of the area, they may be able to refer you to a competent and knowledgeable agent in the area that you are looking.