July 1st, 2023 at 11:00 am

Vacations are all about rest, relaxation, and getting away from your typical routine and surroundings. With staycations on the rise, more people are looking to buy second homes or vacation homes where they can get away while having a place to call their own for the season.

Along with being a great way to stay extra comfortable on your vacations, vacation homes can also make great investments and potentially bring you some extra income. Of course, purchasing any property can come with its complexities, even more so with a second home.

To help guide you through the process, we have a consolidated step-by-step list to buying a vacation home and then offer additional information to consider as you approach different phases of the process. Start by following this guide on how to buy a vacation home and turn your dream into a reality.

Step 1: Determine Your Goals and Budget

Before you start browsing listings, define your goals for the vacation home. Will it be your personal retreat or an investment property? Clarifying your objectives will help narrow down your search. Next, set a realistic budget by considering factors such as purchase price, ongoing expenses, and potential rental income.

Step 2: Research Locations and Property Types

Explore different locations that align with your preferences. Consider factors like proximity to amenities, attractions, and transportation. Additionally, research various property types such as condos, single-family homes, or beachfront villas. Doing initial research will help give you a better understanding of what’s available on the market and what type of property will best fit your needs. 

Step 3: Obtain Financing

Consult with lenders to understand your financing options. Explore mortgage rates, loan terms, and down payment requirements. Ensure that you have a pre-approval letter in hand, as it strengthens your negotiating power and demonstrates your seriousness as a buyer.

Step 4: Engage a Real Estate Agent

Partnering with a knowledgeable real estate agent specializing in vacation properties is invaluable. They can provide insights into the local market, guide you through the process, and represent your interests during negotiations. Look for an agent with expertise in your desired location.

Step 5: Start Property Hunting

With your agent’s assistance, begin your search for the perfect vacation home. Attend open houses, schedule viewings, and explore online listings. Keep your budget and goals in mind while assessing each property’s features, amenities, and potential for rental income.

Step 6: Conduct Thorough Inspections

Once you’ve identified a potential vacation home, it’s crucial to conduct a comprehensive home inspection. Hire a qualified inspector to assess the property’s condition, identifying any structural issues, repairs, or maintenance needs. This step ensures you’re aware of any hidden costs or safety concerns.

Step 7: Make an Offer and Negotiate

If you’ve found the home of your dreams, it’s time to make an offer. Your real estate agent will help you draft a competitive offer that reflects the market value and your budget. Expect some negotiation with the seller, considering factors such as purchase price, closing costs, repairs, or contingencies.

Step 8: Complete the Purchase

Once your offer is accepted, you’ll enter the closing process. Work closely with your agent, lender, and attorney to fulfill all necessary requirements. This includes securing your mortgage, conducting a title search, reviewing legal documents, and finalizing insurance coverage.

Step 9: Plan for Ownership and Management

As the proud owner of a vacation home, it’s essential to plan for its ownership and management. Consider whether you’ll manage the property yourself or hire a property manager. Research local regulations regarding vacation rentals, taxes, and any necessary permits.

Step 10: Enjoy Your Vacation Home

Congratulations! You’ve successfully navigated the process of buying a vacation home and now it’s time to enjoy it. Create lasting memories, relax, and embrace the joys of owning your very own vacation retreat.

Why Invest in a Vacation Home?

Investing in a vacation rental property can offer a multitude of benefits. In addition to the commonly-known benefits of owning a home, there are a few other reasons why you should consider a vacation home:

Additional Things to Keep in Mind Before Buying a Vacation Home

Before diving headfirst into the vacation home market, there are a few other nuances and valuable considerations to have in mind. Continue reading for more details to think about as you prepare for a potential home search.

The right time to buy

While some seasons might be better for buying a property than others, there generally isn’t a wrong time to buy. That largely depends on your finances and goals. Start by considering the “why” of owning a vacation home. Is it an investment, a place to get away, or a mix of both? Is it potentially a future retirement home? Answering these questions can give you a better idea of what actually to look for in a property.

From there, consider the housing market, both on a national level and at the local level. Finding the right deals can be difficult, but it’s a lot easier in a buyer’s market. Just don’t plan to flip or sell the property in the next couple of years.

Affording your vacation home

It’s not exactly surprising, but vacation homes tend to cost a lot of money. They come with the same costs of your first home (sometimes more) but without any of the cost-cutting savings and tax write-offs. That includes homeowners association fees, utilities, and property taxes.

Before you even start looking at listings: 

This process gives you a rough estimate of what to expect from your monthly mortgage payment, and from there, you can figure out whether it’s more economically viable to pay cash or to go for a mortgage.

Renting out your vacation home

As you’re planning for a potential second home, determine how you will use the property. Will it be your primary residence during vacations, or do you intend to rent it out as a short-term rental? Understanding the rental market and potential cash flow from guests is crucial for making informed decisions.

Furthermore, you still have to report the income you make on a vacation rental, unless you rent it out for fewer than 15 days. The IRS also considers a second home an “investment property” if you spend less than two weeks in it and rent it out for the rest of the time. As of the IRS’ latest guidelines, you can deduct up to $25,000 a year if you actively participate in the property management and make less than $100,000 in your adjusted gross income. The former is probably the biggest challenge. “Active participation” can be hard to gauge, and the IRS probably won’t believe that you hold a full-time job and act as a property manager at the same time. Keep detailed records of how, when, and where you maintain your role as a property manager.

It’s also worth keeping in mind that the demand for renting your vacation home will likely be at its highest at peak times of the year. Peak times usually also coincide with periods when you want to use that property yourself.

Work with an agent

Whether it’s your first, second, or tenth home, you should always work with a real estate agent. Even if you think you have experience, a real estate agent just has the market knowledge to make the whole process that much easier. They also likely have more in-depth information and familiarity with the local market and, even beyond the sale, a real estate agent can stay in contact with you and let you know what’s available or otherwise provide assistance. This is highly valuable, especially if you don’t live in the area all year round.

This is why it’s a good idea to work with Berkshire Hathaway HomeServices California Properties if you are looking for a vacation home. With years of experience, exceptional education and training, and insider knowledge, our agents can guide you through the entire process of finding a vacation home, giving you the information that you need to thrive.

Choose the right location

Location is everything with a property, and a vacation house is no different. When you’re deciding on the best place to buy a vacation home for you, start by looking where you want to spend your vacations, but, ideally, you also want to find a location with appreciating real estate prices.

Research the best places to own a vacation home, considering factors like proximity to attractions, accessibility, climate, and local amenities. Popular beach towns like San Diego or vibrant cities like Los Angeles might be worth exploring.

This is also where the help of local California real estate agents can come in handy. They should have an idea of the local real estate climate, and they can give you a good idea of where the market is trending.

The good news is that the asking price in vacation areas tends to be fairly flexible. This flexibility just comes from the low demand compared to urban or even suburban areas. You probably won’t see much competition as a vacation home buyer, though, of course, make sure you talk to a real estate professional. 

Before you dive in on any property, it may be a good idea to try things out beforehand. Stay in a vacation rental at least once, especially if it’s an area you’re not familiar with. Think about any surrounding amenities, as well as the accessibility of the property. Considering gas prices, airfare, and other travel costs, it’s worth finding a property that is easy to get to with plenty of accessible means of getting around.

It may also be worth visiting the location in the off-season to get a better picture of how the area feels year-round. Make sure that the area has enough of the things you need, like restaurants, grocery stores, and general amenities, along with things that will keep you entertained. Scope out the public school system. Even if you don’t plan to enroll your kids in school there, homes near schools that are well-regarded tend to have more value.

Above all, talk to some locals. No one knows an area better than the people actually living there. Talk to residents about the area, what they specifically like there, the changes they’ve noticed in recent years, and anything else that might be of interest. It doesn’t hurt to make friends, especially if you plan to have a second home there.

Financing and negotiations

Understand the financial implications of owning a vacation property. Consider costs such as property taxes, maintenance expenses, insurance, and potential rental income. Consult with lenders to explore mortgage options and current interest rates.

There isn’t much disparity between buying a home and buying a vacation home. If you go the mortgage route, expect to pay at least 20 percent down if you want to avoid mortgage insurance. Depending on the area, the seller, and other factors, you may be able to pay as low as 5 to 10 percent down, though, again, work through your real estate agent to determine your best option. Keep in mind that investment properties tend to have stricter guidelines and thus higher interest rates

Make sure that you go with a local lender in the area of your vacation property. The lender’s knowledge and expertise of the local market can prevent future problems.

Negotiations on a vacation home can be a lot more flexible than with primary residencies. While people sell their second homes for a variety of reasons, many simply have a change of lifestyle, and they want to get through the sale as quickly as possible. Second-home sellers can provide some give in the price and the general terms of the sale. Some sellers may even be willing to carry a second mortgage for a few years just to get the deal done faster.

Be wary of alternative ownership options

There is a wide range of alternative ownership options, most prominently timeshares, vacation clubs, and fractional ownership deals. These options can seem tempting because they tend to come with lower entry costs, but they can be risky or a headache later on. Resale on any cooperative ownership property can fall apart over time, and trying to sell these types of properties can be a real hassle.

Ready to buy a vacation home?

Buying a vacation home is an exciting venture that can provide both personal enjoyment and financial rewards. By considering all important factors before you buy and then following the steps outlined in this guide, you’ll be well-equipped to make informed decisions. With careful planning and research, you can turn your dream of owning a vacation property into a reality and create a haven for relaxation and cherished memories.

Working with a real estate agent at Berkshire Hathaway HomeServices California Properties can help you avoid any common mistakes with purchasing a vacation property, ensuring that you get the right deal and come out on top.


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  2. Investopedia

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  • Steve Smith says:

    I like the tip you gave that negotiations should be planned and reviewed for a better costing approach. This upcoming February 23rd, my spouse and I will celebrate our 1st wedding anniversary. I want to surprise her with a beach vacation rental for our family vacation and to enjoy our time together. I appreciate you for giving tips about choosing beach vacation rentals. I will be consulting a vacation condominium rental to see if I can make a reservation.

  • Interesting post. I really like the subject matter discussed here. I’ll come back every now and then for more posts like this one.

  • At last, something worth reading. It’s always nice to find posts like this one.

  • user-191727 says:


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