Strict Mortgage and loan requirements. Consumers will find that the requirements are even more strict when it comes to financing a vacation home. Lenders want to make sure that you can carry the monthly payments of both your current home as well as a new vacation home and all of the expenses that this includes. Also if you are depending on the rental of your vacation home for cash-flow purposes, don’t expect the lenders to include this rental income in their calculations.
Higher mortgage costs – mortgage fees and interest charges tend to be higher simply because it is viewed to be a higher risk investment.
Insurance costs for flood and earthquake coverage – if you live in a potential flood area or an earthquake area, consider obtaining this insurance coverage. Coverage can be expensive particularly in areas with a regular history of these kinds of events.
Property management fees – if you rent your vacation home or you live far away, you may need to have a company manage and inspect your vacation home on a regular basis. Plan for these costs to ensure that you have factored these into your cash flow.
Rental management will take from 5% to as much as 20% of your rental income.
Increased repair costs – rented homes and unoccupied homes have repair costs just like any other home. Before you purchase arrange for a home inspection and factor in repair costs, upgrade costs, and damage costs from renters
Tax on Income earned – Every country collects taxes on any rental income earned and some states charge higher taxes for foreigners and snow birds. Make sure you are aware of the income tax that needs to be paid along with tax form preparation charges.
Tax on Capital Gains – when it comes time to sell your vacation home, there may be capital gains taxes on any capital gain. Again some states charge higher capital gains rates for out of state investors.
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