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Vacation Home: When it makes Sense or Nonsense

Conversations at backyard barbecues and beaches typically turn to real estate and thoughts of buying a vacation property.

Whether or not it makes sense to buy a vacation home depends on a variety of factors such as the costs, affordability, prospects for future appreciation and ability to generate rental income.

Over the past two years some of the steepest declines in real estate values has been in the decline in vacation home values. But that could mean that reasonable values may be coming back into this market.

The limited supply of available property in the best vacation home locations with waterfront or mountain views, skiing, and culture or in special resort destinations has been a factor driving the interest in vacation property. As with all real estate, future price appreciation mainly depends on two factors: location and supply versus demand.

When searching for the right location, consider these criteria: affordability, peace and quiet, safety, neighbors, home ownership mix and strong public schools. The last criterion is typically not the first thing on the mind of a vacation home buyer. But it is very important as it indicates the level of local community investment and a strong school system helps to maintain local property values.

A few resources to use when searching for top locations for a possible second home are NeighborhoodScout and HomeAwayRealestate, which includes a top-ten location list and affordable towns near traditional resort locations.

Vacation Home Nonsense
The downsides of owning a second home include a higher risk of losing value, which is more likely to happen because second homes are the first thing to go during times of economic decline or financial difficulty. There are also higher costs, especially on mortgage interest rates, insurance and property taxes, maintenance and additional security monitoring. Then there's more time spent maintaining, repairing, paying bills and generally managing another house and property. Finally, owners of second homes may be taking on greater risk of theft, damage and liability as they are not occupying or monitoring their premises as frequently as they would their primary home.

Check back in a few days when I'll cover renting your vacation home and the tax breaks that go with it.

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