One of the best parts of living in North or South Carolina is the proximity to the beaches and amazing Appalachian Mountains that these states offer.
Whether you love hitting the mountain slopes, lazing on a sandy beach, or you want to invest in a rental property, there are vacation homes available that can offer many potential rewards. There are many tangible advantages to buying a second home but nothing beats the intangible benefit of owning and passing property from generation to generation – especially a home that has been and will continue to be the site of many happy gatherings.
It is important to understand the financial and personal benefits that come with such a purchase, including rental opportunities, potential tax benefits, and retirement plans. First and foremost, many people purchasing a vacation home pay for it using a home-equity credit line drawn on their primary residence. Lenders will typically expect you to stay within the debt-to-income limits dictated by Fannie Mae and Freddie Mac where your total debt payments, including all mortgages, cannot exceed 36% of your gross income. However, as a lender should help you understand, some good news is that if you plan to rent your vacation home, you can count some of the assumed rent as income when calculating the DTI ratio.
On average, about ¼ of vacation homes are rented to other people and if your home is in a popular vacation spot, you will most likely be able to rent it if you chose to and earn additional income for when you are not using it. For tax purposes, vacation homes are subject to what’s called the 14-day or 10% rule. You can rent your place for up to 14 days a year and pocket the rental income without having to declare it on your tax return. If you rent out the house for more than 14 days a year, the IRS considers you a landlord and you must report the income but you also qualify to deduct certain expenses. There are give and takes when choosing to rent out your vacation property but it can be one great advantage if you choose to do so.
A vacation home may also be a good long-term asset to hold as homes increase in value. In fact, vacation properties are more likely to retain their value and appreciate simply because they are located in popular areas with a geographically limited supply. Choosing and purchasing a second or vacation home prior to retirement can enable you to experience the benefits of retreat before actual retirement, which can give you time to work on your retirement plans and future beforehand. There are also further potential tax benefits (aside from renting it out) as the mortgage and home equity interest payments and property taxes may offer tax advantages.
If you are looking for a home-away-from home for family vacations or a place to occasionally visit but rent out then retire in, a vacation home is easier to obtain than you may think.