Dream responsibly

On real estate

Did you spend summer vacation at your beach house or mountain getaway? Or did you stay at local lodging, dreaming of one day buying property in your preferred vacation destination?

Sales of vacation homes in the Western US were down 20 percent in 2016 due to scarce inventory and higher prices, but low mortgage rates can still make a second home purchase an attractive place to park investment dollars.

Before deciding on a vacation home purchase, do some soul searching, first into your finances.

Can you afford it?

Second home loans generally require 25 percent down and a healthy FICO score. Lenders look carefully to ensure that you are financially capable of paying two mortgages.

Review your budget to make sure you have a solid emergency fund and cash reserves for unexpected expenses and repairs. Look beyond the purchase price to annual property taxes, insurance, utilities and maintenance costs.

With the growing popularity of shortterm rental platforms like Airbnb and HomeAway, nearly 30% of vacation home buyers rented out their properties for less than 30 days in 2016.

Do your homework on how much you can charge per night or week during different times of the year. Check for property managers or rental agencies in the area that may be able to help with scheduling tenants and maintenance. Seasonal rental income can offset costs, but don’t overestimate your potential earnings, and plan for times when you will be on the hook for all property expenses, regardless of cash flow.

Consult with a tax professional.

Property tax rules and possible deductions for second homes are complicated and vary widely depending on the number of days per year you occupy the home.

There is a bill pending in the California legislature that would eliminate the mortgage interest deduction for second homes to fund an increase in low-income housing tax credits. The California Association of Realtors has come out in opposition to AB 71 which could be voted on in early September.

Many aging boomers are slowing down and looking for places to spend family time or eventually retire. Make sure you have visited the area many times over different seasons if possible, and look in to any local environmental issues.

The farther away your vacation home is, the more difficult it will be to take care of maintenance and upkeep, and the less likely you will be to visit often and get the real return on your investment.

Adriana Donofrio • Podley Properties Glendora (626) 926-9700 • adrianad@podley.com