Vacation Home or Income-Producing Investment

Whether you’re a skier who loves the mountain slopes of Colorado, a lover of the beaches of Southern California, or a potential retiree seeking to escape the snow-laden Northeast for the wide-open, sunny lands of Arizona, there are homes available to meet a wide range of budgets. The biggest decision a potential second homeowner must make is whether they are going to solely own their vacation home or turn it into a vacation rental. Here are the advantages and disadvantages to both options:

 

Investing in vacation rentals

  • Pros:
    • A good vacation rental property generally provides a healthy rental revenue which could potentially cover mortgage payments while also generating healthy additional profit.
    • Using an online short-term rental service like Airbnb makes it convenient to manage your rental property. Their website interface makes pricing, marketing, and communication with potential guests quite straightforward and easy. Airbnb will also oversee the billing process for you.
    • You may qualify for federal tax breaks and deductions related to your investment property. Everything from professional fees or commissions – including property management services- to cleaning and maintenance are potential tax write-offs.
  • Cons:
    • Vacation rentals can be costly to manage, both in terms of time and money. These properties may require seasonal upkeep and special maintenance considerations. You may even incur costs to maintain or monitor the property even when it’s not actively being utilized.
    • Vacation rental properties are particularly sensitive to seasonal fluctuations and economic downturns, which could leave you financially exposed if you suffer a lack of booking revenue.
    • Many states and cities are cracking down on short-term rental services. In California, for example, the fight has been primarily local, reaching a fever pitch in the San Francisco Bay Area. Increasingly state and local municipalities are seeking to reign in short-term vacation rentals, which could put a damper on potential revenue from these properties.
    • You may experience higher renovation and repair costs on a short-term rental. Most travelers expect the latest appliances and furnishings, so you will have to update every few years. Unfortunately, short-term renters are less likely to report any necessary repairs and guests are far less likely to treat the property with respect since there’s no sense of ownership or obligation.

 

Owning a vacation home

  • Pros:
    • Long-term profits: While assets fluctuate in value in the short term, vacation properties are more likely to retain their value and appreciate because they are located in popular areas with a geographically limited supply.
    • Familiarity: Returning to the same place time and after time can be comforting as you become familiar and comfortable with the location. It allows you the freedom to be yourself and the opportunity to expand long-term friendships with residents.
    • Convenience: The ability to conveniently store items that are used exclusively at the second home simplifies travel and packing.
    • Retirement head starts: Though we may love where we work and live, every place has its drawbacks. A common goal of retirement is to have a place to retreat for the times of the year we dislike the most at our main residence. Locating and buying a second home prior to retirement enables you to experience the benefits of a refuge before actual retirement, a time to correct and amend your plans if the reality is different than the dream.
  • Cons:
    • Initial purchase costs: Most people have higher expectations for a property that they intend to own, rather than to rent. These expectations can translate into high prices.
    • Home maintenance: As the homeowner, you are responsible for all home maintenance work.
    • Travel time: A second home will be located hours from your primary residence, requiring either long auto trips or airline flights.
    • Inflexibility: If you are paying a significant amount of money each month for a second home, you may feel that you need to constantly visit the property to justify your investment.
Posted on February 17, 2020 at 8:00 am
Jon Holsten | Category: Buying, Northern Colorado Real Estate, Windermere Real Estate | Tagged , , , , , , , , , , , , , ,

Renting vs Buying: Which is better for you?

Posted in Buying by Meaghan McGlynn 

The debate about whether it makes more financial sense to rent or buy has been raging for decades. Advocates of buying argue that when you pay rent you’re paying for someone else’s mortgage. When you buy, you are making an investment, which can significantly increase in value every year you live in the home.

Supporters of renting say that the extra costs associated with owning a home, such as interest payments, taxes, maintenance, can add up. They add that there’s no guarantee that those expenses will be recouped when the house is sold. Instead of investing in a home, you may be better off investing your savings in stocks, bonds, and other financial securities that hold less risk.

Matthew Gardner, our Chief Economist, forecasts, that we will not break 5% for 30-year fixed Mortgage rates for 2019, and likely won’t break it next year.

This means that getting a mortgage is relatively cheap, raising the question, ‘Is it really worth it to keep renting?’

Even if interest rates stay low, whether to rent or buy has a lot to do with each person’s specific situation. Here are a few considerations to make as you decide.

 

What’s the real estate situation in your city?

Industry groups put out reports every quarter stating the average national sales price for a home, and the average monthly payment for a U.S. rental. These reports are typically based on an average of all the cities in the U.S. But what really matters is what the numbers show when you dig into them on a local level.

Investigate the local sales and rental markets, and you’ll see there are some cities that fall well below that average, and some that rise far above it. When comparing housing costs, be sure to base your evaluation on what’s happening in your city and neighborhood, not the nationwide averages.

 

How long do you expect to live there?

If you don’t plan to be living in the same place for at least five years, renting is probably your best bet financially. But if you think you’re ready to settle down for as long as 7 to 10 years, chances are very good that any home you purchase will appreciate during that time even if the economy runs into some bumps along the way.

 

What’s the mortgage rate?

One of the other key factors to consider is the cost of your loan (the interest you’ll pay the lender). Fortunately, our Chief Economist, Matthew Gardner, does not expect interest rates to hit or break 5 percent, meaning money is relatively cheap.

Your mortgage rate will depend on how much money you have saved, your credit score, and other factors, so make sure to talk to a loan officer before you start looking for a home. Being pre-approved for a mortgage narrows down your price range and helps strengthen your offer when it comes time to compete for your new home.

 

Can you pay a bit more?

It can be advantageous to work a lower monthly payment to the bank so that you can pay a little more than the payment.

For example, if you can afford to pay a little extra towards your mortgage bill each month, say $300 more per month, on a 30-year, $300,000 loan, can knock eight years off the life of the loan and reduce your final bill by more than $63,000. That’s savings you would never see if you rented.

 

Will you need to make repairs or improvements?

Buying a fixer-upper may seem like a great way to get a deal on a house, but if the money you spend on the repairs is too great, your profit could be diminished when it comes time to sell. The same is true for remodeling and improvement projects.

Additionally, you can work with your Mortgage lender for a repair loan. This can help you get that lot you want, and help you pay for the repairs.

But ultimately, if you can only afford a home that demands major improvements, and you don’t have the skills to do much of the work yourself, it’s probably better to rent.

 

Do you have other ways to invest?

Many see a home purchase as an easy way to invest—a place where they can generate savings through home equity. But others say you can make more money renting an apartment and investing your savings in stocks, bonds, and other financial securities.

This is where a financial advisor might come in. They’ll be able to break down what you need to do in order to get the best return on your investments. They’ll also be able to see the big picture when it comes to your money.

 

Can you rent part of the house?

Speaking of a diverse portfolio, let your investment work for you. If you buy a house that includes a rental (extra bedroom, mother-in-law unit, etc.), you could be the landlord instead of paying the landlord. With that rental income, you could pay off the mortgage faster and contribute more to your savings. But, of course, you need to be willing to share your home with a tenant and take on the responsibilities of being a landlord or working with a professional property manager to help you with those duties.

 

Making your decision

To make your decision about whether to rent or buy easier, input the key financial facts regarding your situation into this Realtor.com Rent vs. Buy Calculator:  For help making sense of the results and analyzing other factors, contact an experienced Windermere Real Estate agent by clicking here.

Posted on June 17, 2019 at 8:00 am
Jon Holsten | Category: Buying, Housing Trends | Tagged , , , , , , , ,

What’s in a Condo? The In-Between Style of Home That Might Be the Right Fit for You

Condominium homes are a great, low-maintenance choice for a primary residence, second home, or investment property. This alternative to the traditional single-family home has unique issues to consider before buying, as well as unique benefits. Here’s some background information to help you decide whether purchasing a condo is a good match for you.

Increasingly, condos are not just for first-time home buyers looking for a less expensive entry into the housing market. Empty-nesters and retirees are happy to give up mowing the lawn and painting the house. Busy professionals can experience luxury living knowing their home is safe and well-maintained while they are away on business.  If you are considering buying a condominium for a home, here are a few things you should know:

Condominium basics:

With condominiums, you own everything in your unit on your side of the walls. Individual owners hold title to the condominium unit only, not the land beneath the unit. All owners share title to the common areas: the grounds, lobby, halls, parking areas and other amenities. A homeowners’ association (HOA) usually manages the complex and collects a monthly fee from all condominium owners to pay for the operation and maintenance of the property. These fees may include such items as insurance, landscape, and grounds upkeep, pool maintenance, security, and administrative costs.

The owners of the units in a condominium are all automatic members of the condo association. The association is run by a volunteer Board of Directors, who manage the operations and upkeep of the property. A professional management company may also be involved in assisting the board in their decisions. The condo association also administers rules and regulations designed to ensure safety and maintain the value of your investment. Examples include whether or not pets are allowed and the hours of use for condominium facilities, such as pools and work-out rooms. Should a major expense occur, all owners are responsible for paying their fair share of the expense.

The pros and cons of condominium living:

The condominium lifestyle has many benefits, but condominium ownership isn’t for everyone. Part of it depends on your lifestyle. Condominium living may not be optimum for large families with active kids. The other factor is personal style. By necessity, condominium associations have a number of standardized rules. You need to decide whether these regulations work for you or not. Here are some points to keep in mind if you’re considering condominium living.

Cost: Condominium homes typically cost less than houses, so they’re a great choice for first-time buyers. However, because condominiums are concentrated in more expensive locations, and sizes are generally smaller than a comparable single-family home, the price per square foot for a condominium is usually higher.

Convenience: People who love living in condominiums always cite the convenience factor. It’s nice to have someone else take care of landscaping, upkeep, and security. Condominium homes are often located in urban areas where restaurants, groceries, and entertainment are just a short walk away.

Luxury amenities: May condominiums offer an array of amenities that the majority of homeowners couldn’t afford on their own, such as fitness centers, clubhouses, wine cellars, roof-top decks, and swimming pools. Lobbies of upscale condominiums can rival those of four-star hotels, making a great impression on residents.

Privacy: Since you share common walls and floors with other condominium owners, there is less privacy than what you’d expect in a single-family home. While condominiums are built with noise abatement features, you may still occasionally hear the sound of your neighbors.

Space: With the exception of very high-end units, condominiums are generally smaller than single-family homes. That means less storage space and often, smaller rooms. The patios and balconies of individual units are usually much smaller as well.

Autonomy: As a condominium owner, you are required to follow the laws of the associations. That means giving up a certain about of control and getting involved in the group decision-making process. Laws vary greatly from property to property, and some people may find certain rules too restrictive. If you long to paint your front door red or decorate your deck with tiki lanterns, condominium living might not be for you.

Things to consider when you decide to buy:

Condominium homes vary from intimate studios to eclectic lofts and luxury penthouses. The right condominium is the one that best fits your lifestyle. Here are a few questions to ask to determine which condominium is right for you.

How will you use it? 

Will your condominium be your primary residence? A second home? An investment property? While a studio may be too small for a primary residence, it might be a perfect beachfront getaway. Also, consider how your lifestyle may change over the next five to seven years. If you are close to retirement, you may want to have the option of turning a vacation condominium into your permanent home.

Where would you like to live?

Some people love the excitement and sophistication of urban living. Others dream of skiing every weekend. Whether it’s the sound of the surf or the lure of the golf course, a condominium home affords you the ability to live a carefree lifestyle in virtually any setting.

What amenities are most important to you?

The variety of condominium amenities increases each year. Decide what you want, and you can be assured of finding it. Most urban and resort condominiums have an enticing array of extras, from spas to movie screening rooms to tennis courts.

What are your specific needs?

Do you have a pet? Some associations don’t allow them; others have limitations on their size. Parking can be a major issue, especially in dense, urban areas. How many spaces do you get per unit? Do you pay extra if you have more vehicles?

Finally, once you’ve found a property you like, examine the association’s declaration, rules, and bylaws to make sure they fit your needs. The association will provide you with an outline of their monthly fees and exactly what they cover so you can accurately budget your expenses.

Review the association board’s meeting minutes from the past year to get an idea of any issues the association is working on. An analysis of sales demand and property appreciation compared to like units may help ensure that you make the best possible investment.

Posted on February 26, 2019 at 8:00 am
Jon Holsten | Category: Buying, Housing Trends | Tagged , , , , , , , , , ,