It may hit you every year about this time as you schedule your annual family trip to the coast or other favorite vacation spot. "Wouldn't it be great if we owned our own beach home (or condo or ski chalet)? Instead of paying rent to someone else, we'd be paying ourselves." Well, if you decide to refinance and spend the money on a vacation home, here are some tips to consider.
The 17-week formula
How do you know if you can afford a vacation home -- even with the help of renters? Estimate that one peak-week rental fee should be enough -- and hopefully more than enough -- to pay the home's monthly mortgage if you finance your purchase. For example, if you borrow $300,000 at 5.5 percent for 30 years on your beach cottage, your monthly house payment would be $1,703.36. That should be your minimum weekly peak-rate rental fee. If you don't think you can charge that much for rent, don't buy. However, if you can be reasonably sure of renting your home for at least 17 weeks a year, you should break even. Most owners can count on 12 peak rental weeks each year. Those 12 weeks each year should pay the annual mortgage. Five additional weeks of non-peak rental income usually enable owners to cover taxes, cleaning and maintenance expenses, and other incidentals.
Call Mohamed if you are looking to invest into a vacation home. We'd be happy to make sure you land the best deal possible!
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