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What You Need to Know About Vacation Homes

Dewayne:

Welcome back to another episode of our series, 60 Lessons That We’ve Learned in 60 Years. Today we’re going to talk about the lessons we’ve learned with buying a vacation home.

Kirk:

Let me ask you a question. If you are going to use the home, are there different rules?

Dewayne:

Of course. Is it just for family and friends, or do you want to rent it out and start to recoup your investment?

Kirk:

If you rent it out part of the time, there could be different tax rules than if you rent it out all the time and use it just a week or two a year.

Dewayne:

Absolutely, so you definitely want to talk to your accountant and understand what the tax implications are, and it’s going to vary in different states and different areas. For example, here, you have to collect the sales tax, the tourist tax. You’re at 11+ percent on top of the rental rate.

Kirk:

Plus percent. Yeah, exactly. And you’re responsible for sending that in, so that’s your responsibility.

Dewayne:

Mm-hmm (affirmative), yeah. So make sure that you’re understanding that.

Kirk:

What about local laws?

Dewayne:

Absolutely. They can cap the number of days that you can rent the property out, and local laws and HOA rules as well.

Kirk:

Yeah, the HOA rules have all kinds … So you’re going to have to comply with the homeowners’ association, the local laws, and you have to make all that blend because they’re typically not the same thing.

Dewayne:

Mm-hmm (affirmative). Then whenever you’re doing that analysis, that purchase analysis, a lot of people, they don’t factor in all the expenses so that it looks like the return is actually higher. They’re not taking into account vacancy allowances and your miscellaneous maintenance costs. Then the other thing is are you going to try to self-manage or are you going to hire a property management company, because that’s going to of course impact the analysis as well.

Kirk:

That changes it. In summary here, where we are in this area, it’s great to have a condo on the ocean because people rent them out for three to six months out of the year, and typically it covers all their costs and they can use it the other three to six months if they want. If they’re coming in for the weekends or whatever, it’s a great vacation home, but also a great rental.

Dewayne:

Yeah, and then the rental just offsets.

Kirk:

Correct, correct.

All right. Well, thank you so much for watching. We appreciate any comments that you can send our way. Next week we’re going to talk about buying real estate out of state. See you next week.

Dewayne:

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