Curve

How do you maintain a second home if it’s far away?

Peter WardenThe Mortgage Reports Contributor

Your vacation home: a long distance relationship

If you own a second home, chances are it’s not in the neighborhood. And there will be repairs and maintenance tasks, especially if you’re dealing with salt air, snow, or other harsh elements. How will you cope?

  • Contact several property managers before your next visit and interview them when you arrive
  • Buy into a condominium in an association that performs maintenance and repair for you
  • Get to know the area on social media and hire your own repair and maintenance people

What you probably don’t want to do is spend your vacation time with home-related chores. And you don’t have to.

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Vacation homes versus rental homes

We often use the terms, “rental home,” “second home” and “vacation home” interchangeably. However, your mortgage lender and the Internal Revenue Service (IRS) consider vacation properties that you rent out very different from those you mainly use yourself.

Your mortgage lender won’t allow you to use any income or potential income from a vacation home to help you qualify for your loan. If you plan to earn income from the property, it’s not a vacation home — in your lender’s eyes, it’s a rental — and you’ll pay higher fees and face tougher underwriting standards.

But let’s assume that your intent is to use the place yourself. The IRS doesn’t care if you plan to rent out your ski cabin. However, if you use it too much yourself (more than 14 days or 10 percent of the days you rent it out), you can’t deduct rental losses from other income.

Will you rent out your second home?

One factor that will affect the cost of maintaining a vacation home is whether or not you rent it out. Do not confuse this occasional On the one hand, your costs will be considerably more if you do. After all, tenants mean:

  • Additional wear and tear
  • Regular cleaning between tenancies
  • A need for someone on hand to deal with all those inevitable issues that demanding vacationers will raise
  • Higher insurance premiums, according to the Insurance Information Institute

On the other hand, extra costs can be offset or exceeded by rental income.

 Renting out

A 2017 NAR survey of those who’d bought a vacation home in 2016 found only 44 percent planned to rent it in 2017. So 56 percent wasn’t going to rent it out in their second year of ownership. Some (15 percent of all buyers) had tried renting in 2016 but had decided not to continue the following year.

If you plan to rent out your vacation home, you should be pleased you’re in a minority. Presumably, rents would collapse if everyone who owned such a home flooded the market with competing properties.

Whether or not you rent it out will probably play a big part in how you decide to decide to maintain your second home. As described above, there’s much more work associated with rentals, and you may need to employ professionals to help you.

Main models for maintaining a vacation home

Understand that the sums listed here exclude routine homeownership costs like electricity, gas, water, internet connection, property taxes, sewer charges, trash collection, homeowners association (HOA) fees and so on.

You do the work

That NAR survey revealed that 3 percent of vacation buyers purchased a place 20 miles or less from home. Understand that few mortgage lenders will believe that a home within a few miles of your regular residence is a vacation place, and they will likely underwrite it as a rental.

If you’re renting out, don’t underestimate the hassle involved in getting up early every time tenants change, driving to the second home and (at a minimum) cleaning before the next tenants arrive. But doing the work yourself will certainly save you significant sums. And the more there is to do (yard work, pool …) the more you stand to save.

Related: Homeownership question: “How do I find a licensed plumber near me?”

That won’t, of course, eliminate all your maintenance costs. There will still be things to paint and to fix most years. Many suggest you should annually budget either 1 percent (some say 1.5 percent) of the purchase price or $1 per square foot of living space to cover those.

It may be consistently higher if the property is old or is located in a challenging environment, such as a seashore or a place that’s subject to extreme weather or natural disasters.

You may be able to drive that average down if you’re a contractor or a talented amateur home improver. But it could be higher if you call in a professional for absolutely everything. Either way, you’ll certainly want a reliable emergency plumber and electrician on speed dial.

Related: Homeownership question: “How do I hire an electrician, and what does it cost?”

Let the HOA pay

One 2015 survey put the average homeowners association annual fee at $4,212 ($351 monthly). But, in 2016, Realtor.com reported that one Hollywood condo charges some residents $4,000 a month. So averages aren’t all that useful.

However, buying a second home within a well-funded, well-managed, full-service HOA can certainly save you a lot of time and energy. And it may provide you with a range of amenities — from pools and tennis courts to gyms and golf courses — that will make it great for your own downtime as well as attractive high-paying vacation renters.

It may also fully maintain the complex, both internally and externally, leaving you to cover only costs associated with the cleaning, decoration and furnishings within your unit.

You just need to know what you’re going to get and how much you’re going to pay and don’t assume big bucks deliver big services. Before you buy any home in an HOA, check its rules and its accounts. If you plan to rent your home, you also need to be absolutely sure there are no restrictions on vacation rentals.

Professional property manager for a non-rental home

You might call this the Rolls-Royce option because it’s like a Rolls-Royce in two respects. First, it should provide you with a serene and effortless experience, insulated from the harsh realities of the real world. And, secondly, it’s going to cost you a lot of money.

Each property manager or management company will have its own menu of services but some offer:

  • Weekly inspections and reports
  • A 24/7 hotline with access to proven professional contractors/electricians/plumbers, sometimes directly employed within a company’s technical team
  • Routine maintenance
  • Preventative maintenance
  • Storm preparation
  • Concierge service to prepare for your arrival and make your stay pleasant
  • Yard work
  • Pool maintenance
  • Cleaning

Typically, a provider will add 10 percent to the costs of the above to cover its expenses and profit, although that can vary.

Professional property manager for a rental home

You can hire managers to look after your second home’s rentals as well as its maintenance and cleaning. They may market your home, handle bookings, collect rents, prepare the home for renters and then act as their point of contact, ensuring their satisfaction. But your rental income will be less.

Expect to pay anything between 10 percent (for long-term tenants) and 40 percent (for vacation rentals) of your rental income for those services. And beware those that are too cheap to be true. They often charge hidden additional fees that they hope you won’t notice before you sign the contract. So read the small print.

Some will even guarantee you an agreed income for each week you make your home available. Again, it will cost you to transfer that risk to the manager.

Non-professionals

At the other end of the scale, you may hire your own servicers to take on some of the tasks you need. They may keep the home, yard and pool in good condition, handle cleaning between vacationers departing and arriving and organize fresh bed linen and towels.

Look for someone responsible and reliable with time on his or her hands. That may be someone fit and retired. However, age is no guarantee of appropriateness, just as youth should not be a bar to selection.

The above are the most common models for maintaining a second home. As with many things in life, the one you choose will be a balance between cost and effectiveness and convenience.

Verify your new rate (Aug 21st, 2018)