Published: April 14, 2023 | By: Inman

Helping a client purchase that lake place, ski condo or snowbird destination? 

Or sometimes even more complex, a client considering selling the family retreat?

Vacation homes can be a lifelong goal for many families, but along with the fond memories made come a slew of financial and emotional implications.

And while it is not your job to know every line of the tax code, you are uniquely positioned as their agent to help them identify areas where they should give extra consideration or even loop in other members of their financial team for niche expertise.

So, if you have a client buying or selling a vacation home, here are the financial aspects they need to know.

Hidden expenses

The total cost of owning a vacation home is typically the driving factor in how much vacation home to purchase or for a client deciding to sell a property.

While we all know that homeownership costs more than simply principal and interest payments to the bank, the level to which additional expenses can mount for a vacation home can be surprising to homeowners.

Here are some common hidden expenses your clients should be aware of:

• Higher mortgage rate than a primary residence
• Utilities (Don’t forget high-speed internet!)
• Maintenance
• HOA dues
• Taxes
• Improvements to the property
• Increased homeowners’ insurance
• Security
• Furnishing the home
• Toys (boat, side-by-side, golf cart, etc.)
• Travel to/from the property
• Cleaning fees

While stretching the budget to purchase the property might make sense in some circumstances, other buyers may be happier with a lower mortgage payment that leaves room in the budget for extra costs like housekeeping and yard maintenance that allow them to spend time at the vacation home being on vacation, instead of working on the vacation home. 

Additionally, buyers of a second home will want to carry a higher emergency fund after their purchase. 

Not only will the bank want to see a higher cash reserve from a financing perspective, but buyers will undoubtedly find themselves with a higher rate of “unexpected” expenses as the owner of an additional property.   

The tax man

As with any large financial transaction, taxes will need to be a primary consideration for your client.

If your client is on the selling end, likely their biggest concern is going to be gathering their costs basis to determine their long or short-term capital gain on the sale.