Should You Buy a Vacation Home During the Pandemic?
With most of us cooped up in our apartments or houses, it may be tempting to pull the trigger and finally purchase the vacation home you've always dreamed about.
After all, mortgage rates are hitting record lows, and a change of scenery sounds awfully sweet right about now. If you can swing it, why not?
Reality check: We’re also living through a time of economic uncertainty. You could lose your job or find yourself up against a major financial challenge in the weeks or months to come.
The answer depends on your individual financial situation and your plans for the future. We talked to experts to help weigh the pros and cons of investing in a vacation property right now.
Con: This could be a risky time to buy…
“Even though real estate is one of the more sound investments you can make, do you have the tolerance for risk that comes with it?” asks Jen Horner, a real estate agent based in Salt Lake City.
If you see yourself being ready to sell off your second home in just a few years, you should probably hold off on buying, and stick to renting in your dream destination.
If you only plan to keep the property for the short term, you’re more likely to expose yourself to risk and market volatility when it comes time to sell; who knows if your home will retain value over the next few years?
Pro: …but with low interest rates, now could be a great time to invest
“For those with the income stability … purchasing a second home may make a lot of sense,” says James Duncan, director of education and engagement at Thrive Mortgage in Georgetown, TX.
“Lower interest rates have boosted purchasing power, and for those who have ‘buy-and-hold’ mentalities, there likely has not been a better time to buy.”
That means if you plan to purchase a property that you'll keep for years to come, you’ll be in a good position to weather the twists and turns of a volatile economy in the months (and years) ahead.
“Real estate is always a good investment, provided you have the right financial strategy in place,” Duncan says.
Ultimately, if you’re unsure about it, talk over your situation with your agent and your financial planner to decide if now is the right time to buy.
“Very good Realtors® will not only walk you through the financial steps to ensure a good investment, but will also do their due diligence to ensure you're investing in the right area with growth,” Horner says.
Con: Getting a mortgage has gotten trickier
“In the age of COVID-19, the primary concern for all lenders has been the continuity of income,” Duncan says.
As a result, buyers are jumping through more hoops than ever to prove that they'll be able to pay a mortgage.
Before the pandemic, lenders would run a few employment verifications before approving a new loan for a home buyer.
These days, some lenders are running checks seven—or even 10—times before approving a loan. If you lose any source of income during the buying process, that could jeopardize your ability to purchase a second home.
Pro: You can offset the cost of your vacation home by renting it out
If you buy a second home in a popular vacation spot, you could tap into a new source of income by listing your place on sites like Airbnb and VRBO.
Just keep in mind that renting your home to vacationers will add extra responsibilities to your plate, including maintaining the property, keeping photos and descriptions up to date, and cleaning between guests.
The possibility of rental income also comes with a major COVID caveat: During the pandemic, travel restrictions and cleaning logistics have made renting more complicated for hosts.
Be sure you understand what you’re getting into before you bank on rental income.
Con: The market where you’re buying might take a while to recover from the pandemic
Do your homework on the area where you want to buy. What kind of travel restrictions are in place? Will you be able to enjoy the natural beauty of the location, even if the restaurants and attractions are closed? Or will social distancing dampen the appeal?
You also need to consider what this means for your property value.
“If the local economy is largely driven by tourism, is it resilient enough to withstand downturns which could then impact property values?” Duncan asks.
Work with your agent and financial planner to evaluate an area's risk before you decide to buy.
Pro: You don’t have to be a multimillionaire to own a vacation property
If the idea of a vacation home seems out of reach, here’s some good news: It’s more feasible than you think.
“Second-home purchases are not just for high-net worth individuals,” Duncan says. “There are loads of opportunities for prospective borrowers at lower price points as well.”
If you’re willing to expand your search beyond the main drag or to take on a few renovation projects, you’ll have more options, at a lower price point.
That means you might need to look for homes near the water instead of on it, or to search for homes that need a little bit of updating. If you’re flexible and willing to put in a bit of elbow grease, it’s possible to make your vacation home dreams a reality.