Beachfront Vacation Home

7 Considerations To Make Before Buying A Vacation Home

January 23, 2024 9-minute read

Author: Scott Steinberg


Do you ever come back home from a great vacation and wish you could have that slice of paradise for your very own? Buying a vacation home in your favorite go-to destination isn’t only a great investment, but it can also allow you to create memories for years to come.

Here’s a guide on what you should know before buying a second home as a vacation property. Plus, learn how to successfully maintain a vacation rental and where to find your dream getaway.

Things To Keep In Mind Before Buying A Vacation Rental Property

It’s important to be aware of several factors as you begin the search for your perfect vacation property. We’ll look at seven of them below.

1. Real Estate Values Vary

In popular vacation spots, real estate values tend to go up. It’s no wonder real estate investing is a popular choice for investors looking to grow their assets. Whether you’re renting out the home or using it as a second home, owning a vacation property can build your wealth and equity through mortgage payments.

Ask yourself if now is the best time to purchase another home. Take a look at the health of the current real estate market in your preferred area. If listing prices are inflated and there’s a clear housing shortage, you may want to wait to invest to avoid overspending.

You should also take the time to look at the rental market in your desired location if you plan on renting out your vacation home. Check to see if a lot of rental properties are in the area. If it looks like there’s an opportunity to fill demand, a vacation rental home may be a wise investment.

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2. You’ll Need To Choose Between Flexibility And Reliability

Decide if you prefer the flexibility of choosing from a variety of destinations for an annual vacation over the reliability of owning a vacation home you can always go to. Instead of having to plan trips to the same destination and dealing with different hotels and rentals, a permanent vacation home saves you the trouble of dealing with travel expenses.

3. You Can Receive Tax Breaks For Mortgage Interest And Property Taxes

With a vacation home, you can receive tax benefits for mortgage interest and property taxes if the home is being used as a secondary residence.

Here are the types of tax deductions that home buyers may receive, depending on how they plan to use their vacation property:

Property Tax Deduction

You can deduct property taxes on a second home. However, you can’t deduct the whole amount. Both state and local property taxes are eligible. The deduction is limited to no more than $10,000 per tax return, or no more than $5,000 if you’re married but file taxes separately.

Personal Residence Mortgage Interest Deduction

Just like with your primary residence, you’re eligible for a tax break of up to $750,000 if you’re married, filing jointly or single. It’s worth up to $375,000 if you’re married and filing separately.

Rental Property Mortgage Interest Deduction

Income from renting your vacation home is considered rental income if you rent the property for more than 14 days annually. If you meet the minimum, you can receive tax breaks on your mortgage, insurance and property taxes.

4. You’ll Need Funds Saved For Customizing Your Home

Your vacation home may be in your dream destination, but it might not be your dream home. Determine if you have the financial resources to renovate your future vacation home to align with your specific needs and preferences. Keep in mind that financial requirements for a second home may be different.

This will be especially important if the property will be a vacation rental home. The more accessible and fixed up the home, the more appealing it will be to potential renters. For example, if your vacation home will be in a popular retirement area, you may need to make your property more accessible.

5. It’s A Large Financial Investment

Properties in popular vacation spots can be on the high end of housing price ranges. When looking at spots for a vacation home, set a realistic max of how much you’re willing to offer on a home.

Discuss median sale prices in the area with your real estate agent to gauge how much you need to put down on a home. You should also evaluate how much remodeling or initial maintenance work a property may require to determine if it’s worth the investment.

6. Double The Homes Means Double The Cost

Remember, owning two homes will mean you’ll also be paying double for almost everything. This can include another mortgage and additional property taxes, utilities, home insurance and homeowners association (HOA) fees Be sure you’re in good financial standing to afford all the added expenses that come with owning another property.

7. You’ll Need To Maintain The Property

Whether you plan to rent out the vacation property or use it as a family home, you’ll need to be able to handle house maintenance. You can decide whether you want to do the maintenance yourself or hire someone to take care of the place when you’re not using it. If you decide to pay a third party to manage home maintenance, be sure you have the financial means to cover the costs.

Before making a decision, you should also speak with your mortgage lender about using your vacation home as a short-term rental property. Some financial institutions might require their borrowers to use a third-party property manager to schedule bookings and handle the upkeep of the rental.

Later, we’ll provide some tips on how to successfully maintain a vacation property.  

Quick Tips For Buying A Vacation Home

How To Buy A Vacation Home: 5 Steps

Taking a few key steps will help you navigate the process of buying a vacation home. Next up are five important steps to plan for.

1. Decide On Your Ideal Housing Choice

Your vacation home should reflect your lifestyle. If you live in a cramped city apartment, you might consider purchasing a vacation home outside of the city that provides you the luxury of space. If you live in a spot that sees rain the majority of the year, you could purchase a home in an area that sees plenty of sunshine all year round. When buying a vacation home, you should envision how much you’ll be using that home and if it’s worth the investment.

2. Determine How You’ll Use The Home

You should decide how you want to use your vacation property. Determine whether the property will be a second residence, an investment property or your vacation home. Each option has its financial implications, so it’s important to decide which is ideal for you before purchasing the home.

3. Set A Clear Budget

Determine whether you can afford to buy a home as a vacation property. Even if you plan to use the home as a rental property, plenty of extra finances are still involved. Be as realistic as possible when looking at destination spots and make sure you can comfortably afford the investment.

4. Qualify For A Second Home Mortgage

You’ve determined you’re in good financial standing to afford a vacation home, but what’s next? You’ll want to make sure you’re eligible for a second home mortgage, which might have different requirements than those for a primary residence. This includes checking your credit score and ensuring you have the funds for a down payment of 10% or more. Once you believe you’re qualified to take out a vacation home loan, you can get a mortgage preapproval and start the house-hunting process.

5. Lean On The Expertise Of A Real Estate Agent

When searching for your dream vacation home, enlist the help of a local real estate agent or REALTOR®  who’s familiar with the area. They should also be able to instruct you on local rental regulations, taxes and commissions. If your offer is accepted, they’ll likewise help you through the closing process.

Get approved to buy a second home.

Apply online with Rocket Mortgage®.

Tips For Successfully Maintaining A Vacation Rental

Owning a vacation rental property can be a smart financial move that grows your wealth and builds assets. However, lots of moving parts are important to consider. Here are some tasks you need to accomplish in order to successfully run a vacation rental.

Stay On Top Of Expenses

Financial expenses for a vacation rental don’t just stop at your monthly mortgage payments. You’ll need to cover several expenses, whether they be one-time purchases or monthly bills.

Here are some expenses frequently associated with buying a vacation rental property:

  • Homeowners insurance: Just like your primary residence, a vacation property will require homeowners insurance. The standard homeowners insurance policy provides coverage in the event of damage. Cost differs by state, but the average insurance premium is $1,428 per year.1

  • Property management: This will include house repairs and outdoor landscaping. You’ll want to set aside an annual fund amount that’ll go toward You can hire a professional property management company to handle tasks like house cleaning, landscaping and repairs.

  • Home furnishings: Without proper furnishings, a rental property won’t be very appealing to potential renters. Set your home up with bedding, living room furniture and kitchen appliances to start. The more usable your home, the more appealing it will be when listed online.

  • Security system: Even if your rental property is in a gated community, it’s better to have a security system locked in to protect yourself and your renters. You can install smart security cameras on the house exterior or a smart doorbell that records video footage of people who attempt to access the home through the front door.

  • House cleaning: If you do not hire a property management company, you’ll need to clean the home yourself or hire a third-party housekeeper after a renter finishes their stay.

Establish A Digital Presence

Promote your vacation property on popular rental sites such as Airbnb and VRBO. On those sites, you’re able to decide how long rental stays can be and the total fees and costs for potential renters.

After approving a renter’s stay, connect with them via email or an online messaging system to keep them informed about the vacation property. Try an email template that will include important info to know before coming to use the home, as well as local go-tos and activities for the renters to try out during their stay.

Vacation Home Renter Reading Welcome Email Online

Download Welcome Email Template

Create A Memorable Rental Stay

When renting out a property, you’ll want to give the renters the best rental experience possible so they can then potentially come back or tell others about their wonderful stay. Provide your guests with the necessary amenities, such as kitchenware, bathroom products and cleaning supplies. You’ll also want to provide clear check-in and check-out instructions to ensure the property remains well-kept.

Tip: Create a binder that includes contact information, local activities and what to do at the end of a stay. Print out this rental rules sheet to add to the binder that lists stay expectations.

Home Rental Rules

Download Rental Rules

Best Places To Buy A Vacation Home 

Looking to buy a vacation home but not sure where to look? Location can be very important with a vacation property, especially if you plan to rent out the home. The more appealing the location, the more interested potential renters there will be.

These were some of the top vacation home counties as of 2023:

  • Lee County, Florida: Located in Southwest Florida, Lee County is home to several popular destination spots on the Gulf Coast, including Cape Coral and Fort Myers. Current home prices sit in the middle range, with a median sales price of $380,022.

  • Oscoda County, Michigan: Situated on the north side of the Au Sable River, Oscoda County has numerous national parks and recreational activities to offer, including the Huron-Manistee National Forests. Current home prices sit in the lower range, with a median sales price of $127,200.

  • Swain County, North Carolina: Only 2 hours from Knoxville, Tennessee, is Swain County. Home to the Great Smoky Mountains National Park, current home prices sit in the middle range, with a median sales price of $367,500.

  • Collier County, Florida: Sitting on the Gulf of Mexico, Collier County offers natural beauty and luxury with the Everglades National Park and Naples Botanical Garden. Current home prices sit in the mid-price range at $475,007.

  • Dukes County, Massachusetts: Up in the northeast of the county, you’ll find Martha’s Vineyard and the Elizabeth Islands in Dukes County. It’s one of the most expensive vacation home counties, with an average home sale price of $1.5 million.

Take the first step toward buying a second home.

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Scott Steinberg

Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. A strategic adviser to four-star generals and a who’s-who of Fortune 500s, he’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD. The CEO of BIZDEV: The Intl. Association for Business Development and Strategic Planning™, his website is