Whether you’re buying a second home while you rent out your first home or you’ve decided to invest in a vacation home in Mammoth Lakes, the financing can look a bit different. Thinking through these four questions will help you decide if it’s the right choice for you.
1. Do you have plenty of cash reserves?
When you get into second home buying, underwriters will want to see significant cash reserves before they approve the loan. Sometimes they’ll want to see enough in reserve to cover six months of payments on both properties. And if you’re not buying with all cash, you’ll probably have to do a 25-30% down payment rather than the standard 20% for first/primary homes.
2. Is your debt-to-income ratio low?
Debt isn’t a bad thing, but most lenders will want to see a modest debt-to-income ratio — ideally between 36 and 42 percent. If the second home you’re buying will produce rental income, your chance of getting approved is higher.
3. Are you prepared to pay higher interest rates?
Second mortgages are considered more risky, so lenders tend to charge higher interest rates. Banks will also be looking at your cash reserves to see if you can pay for maintenance in addition to the new mortgage. Add in higher interest rates and your second home is likely to be quite a bit more expensive than your first home.
4. Are you ready for the additional costs?
We’re not done quite yet — there are other additional costs that come with buying a second home or vacation home in Mammoth Lakes. For insurance, you’ll probably be paying about 20% more than a primary residence if you’re renting out the property at all. If you don’t live in Mammoth Lakes, you might also need to pay for someone to manage your property. Regardless, you’ll have added expenses like maintenance and utilities.
If you’re financially prepared for it, buying a vacation home or second home can be a dream come true.
Learn more about buying a vacation home in Mammoth Lakes in my Ultimate Home Buyer’s Guide or contact me to chat more about vacation home financing.
If you liked this post, you might also like:
- Pros and Cons of Purchasing a Home in a Resort Community
- 4 Steps to Take Before Buying a Mammoth Lakes Vacation Home
- Buying a Vacation Rental Property in Mammoth Lakes: What You Need to Know
My favorite thing about being a Mammoth Lakes realtor is getting to introduce people to their dream homes. When I meet a new client, I’m always reminded of my own search for a perfect home in Mammoth Lakes.
We bought our first Mammoth Lakes property in 2003. It was a second home for us. We loved visiting Mammoth Lakes, but we knew nothing about homeownership in a snowy mountain town.
From visiting over the years, we had a list of things we wanted: to be able to walk to the lift or gondola to go skiing, to have covered parking so we weren’t breaking our backs shoveling and to be able to rent it when we weren’t here. We were also looking for a turnkey property.
Just like most potential buyers, we toured the town with a realtor. We ended up choosing a condo near Eagle Lodge. It was a great location with a beautiful view and lots of trees. My husband, John, wanted to sit on the deck and feel like he was in the mountains — it checked that box for him. It was a wonderful vacation home for us for many years.
When we made the leap to live here full time, the condo we bought in 2003 was suddenly too small. We ended up renting to see if we could really make it work living here full time. Living in Mammoth Lakes and visiting Mammoth Lakes are totally different. While renting, we were able to narrow down what we wanted in our next home:
- Our own garage: We live here four seasons out of the year, and each season has a different activity (or two… or three!) That’s a lot of toys to store: skis, bikes, kayaks, etc.
- Turnkey: Many Mammoth Lakes homes for sale involve a lot of fixing up. This can be great for the right person, but we wanted a home that was ready to move into.
- Single Level Living: We didn’t want to be trudging up and down stairs all the time, so we wanted as close to a single level home as possible.
- Townhome: We veered away from the typical American dream on this one. Living in an area that gets an average of 200 inches of snow per year, we didn’t want to have to deal with the shoveling, plowing, exterior repairs, landscaping, etc. so a single family home was not for us.
- A deck to enjoy: Like I said, John wanted to feel like he was in the mountains, even when he was at home. Many condos in Mammoth Lakes have decks, but they’re often so small that they just serve as firewood storage. We wanted space to actually use and enjoy.
- A gas/propane log fireplace: Speaking of firewood, we didn’t want to go down that road. We wanted the warm and cozy ambiance of a fireplace without having to gather, chop and stack wood.
We found the perfect place for us—a newly constructed townhome in Snowcreek’s Creek House development. We have a two-car garage, just one set of stairs, a deck large enough for a BBQ, and a gas fireplace that I turn on with the press of a button. It feels like a dream come true.
When meeting with a new client, I always have them visualize what a property will look like in each season. I ask them what their partner or family is looking for—are they like John wanting to feel like they’re truly in the mountains, or are they dreaming of being neighbors with the chairlift? I tell them about my experience buying first as a second homeowner and then as a full-time resident and how I navigated the process.
And when we walk into the Mammoth Lakes home that happens to check all their boxes, the look on their face always reminds me of the excitement I felt when I found my own dream home.
Learn more about buying a home in Mammoth Lakes with my Ultimate Home Buyer’s Guide. Give me a call with any questions: (760) 914-4664.
Photos by Josh Wray for Visit Mammoth
With the end of the year nearing, it’s time to get all your tax options in order. With a second home, you have tax items to consider that you wouldn’t normally have with a first home.
Second home tax deductions:
1. Mortgage interest. You can deduct the interest if you itemize deductions. Your deduction might be limited if either of these is true:
a) Your mortgage is more than the fair market value (FMV) of your home.
b) The mortgages on your main home and your second home are more than:
i) $500,000 if filing single
ii) $1 million if married filing jointly
2. Real Estate taxes. Interest on a home equity loan or line of credit. This applies unless either of these is true:
a) The mortgage is more than the Fair Market Value of the home. This is without mortgages and including grandfathered debt.
b) The home-equity debt on your main home and second home is more than:
i) $50,000 if filing single
ii) $100,000 if married filing jointly
3. Renting your second home
a) You don’t have to report rental income if both of these apply:
i) You use the home as a residence.
ii) You rent it for fewer than 15 days during the year.
iii) It’s considered a residence if you or a family member uses the home for personal use for more than the greater of these:
(a) 14 days
(b) 10% of the number of days you rent the home at fair rental value
You can’t deduct expenses you can attribute to the rental. However, you can deduct interest and taxes if you itemize your deductions.
If you use the home as a residence and rent it for 15 days or more, report the rental income. You can deduct your interest and taxes as described above. You can deduct other rental expenses, including depreciation. However, you can only deduct up to the amount of the income minus the deductions for interest and taxes. Carry over any rental expenses not deductible under this rule to the next year. Then, they’ll again be subject to this limit.
If you don’t use the home as a residence, the above rules don’t apply. Report your income and expenses the same as you do for other rental property. Source: H&R Block
Stay tuned for more tax rules next week.
Contact Sonja Bush for help buying selling or renting your second home. She can be reached by phone at (661) 979-9000 or by email at [email protected]
You purchased a second home or vacation home with the purpose of renting it out for additional income. You’ve lived in it a while, decorated it the way you want, furnished it with durable furniture ready for others to enjoy. Now it’s time to get it ready to rent out.
1. Make the home as livable as if you were living in it. Your tenants want to feel just as comfortable as you, so invest in good quality, durable furniture. Remove any furnishings that don’t exude a vacation vibe or experience. Make sure seating is comfortable and lighting is good and sets a mood.
2. Remove all personal items. Install in a locked cabinet or pantry, even storage, to put your personal irreplaceable items in when you are not there. Remove anything personal to avoid getting damaged.
3. Stock the home with basics for a full house. If your home sleeps six, then provide two of everything for each guest. Two bath towels, hand towels, linens, bed sets, plates, bowls, cups, glasses, etc. Don’t forget to provide a TV, stereo, DVD player and coffee maker. All the normal comforts of home.
4. Hire local reliable property management services. You don’t want your property manager to be out of town when you are out of town. No one will be watching over your investment. Make sure your property management company is local, close to the property if not on-site, and only a phone call away. They are your eyes and ears while you are not living in the property. Get references from others who have used them in the past.
5. Set your visits on the calendar now. If you want to be assured your home will be available when you want to visit, make sure you put that on the rental calendar now so that it doesn’t get booked when you want to enjoy it. Even if it’s only tentative bookings, at least something will be down in writing and you can always change it later.
Sonja Bush is a Resort and Second Home Property Specialist, ready to help you find, purchase, or sell your Vacation Home or Second Home. Call her today at 661-979-9000 or email her at [email protected] with whatever your Second Home and Vacation Home needs are.
Thinking about buying a second home? Below are seven steps to consider when making your decision.
1. Decide whether it makes financial sense – Is it for an investment, a vacation home, or both? Start building up cash reserves now.
2. Decide where and what type of home to buy – Consider resale value, convenience and amenities, property tax rates, the availability and closeness of medical care.
3. Look at the tax implications – You’ll now have income tax on top of property taxes if you choose to rent out the property. If you’ll be renting out a vacation home, how long you stay at the property can change how much you’ll owe in income taxes. If you rent out the home for 15 days or more during the year, you have to report all rental receipts to the IRS as income, but you can also deduct operating expenses such as utilities, repairs, insurance and management fees against that income.
4. Prepare short term cash and long term financing – If you are not purchasing your second home or vacation home with all cash, you’ll need to come up with the down payment (normally 20% of the purchase price) and loan for the remaining balance.
5. Consider non-traditional financing – Borrow from family and friends, get a partner in the property to share with, and look into whether or not the seller would be willing to carry a second mortgage for a few years.
6. Prepare if you will be a landlord – Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved.
7. Protect your second home:
a. Get a home inspection
b. Purchase title insurance, hazard insurance and liability insurance
Sonja Bush with Mammoth Village Properties is ready to help you navigate the purchase of your second home or vacation home. Call her today at (661) 979-9000 or email her at [email protected].
Buying a second home can be both exciting and overwhelming. Many second homebuyers start out on “vacation high” where they fall in love with the place they are enjoying for a few days holiday. Once the decision is made to make the dream a reality, anxiety can set in. The best way to relieve the anxiety is to follow these simple steps.
- Decide how much home you can afford.
As a homeowner, you know there is more to owning a home than just the mortgage. Even if you are paying cash, you need to consider other costs. For a vacation destination these costs may be different than the costs associated with your primary residence. In addition to property taxes, insurance, maintenance, utilities and HOA’s (home owner association dues), there could be other costs based on the location. For example, in a winter location like Mammoth Lakes, California there could be costs for snow removal, heating (propane, firewood, etc).
- Develop your vacation home wish list.
Where do you want to be and what is most important to you? For example, is being in walking distance to shopping and restaurants important or is being able to ski in/ski out more important. Prioritizing your desires in advance is helpful. It is easy to get caught up in the moment when viewing property and keeping addressing your priorities in advance will keep your property search focused.
- Understand the costs of buying in advance.
Communicate with your Realtor in advance your financial situation. In some resort projects traditional financing may not be available and third-party or private lenders may be the only option. This could require a larger down payment or even higher interest rate. In addition, there may be other costs common in the area.
- Be ready to make an offer.
If financing, this includes getting your credit in order and obtaining a prequalification approval. Get a free credit report (you are entitled to one annually from the major credit bureaus) and make sure the information is accurate. Your Realtor can recommend local lenders that have experience lending in the resort community. Talk with the lender to get a prequalification letter and understand your loan options. If paying cash, make sure you have “proof of funds” documentation to support your “all cash” offer.
A qualified Realtor can help you follow these steps and make the process flow smoothly.
Here are five key tips to assess vacation choices, whether for personal use or an investment.
1. Understand your budget. If not paying all cash,qualify for a loan before looking. Understand how much discretionary income you will need. You will need to cover monthly mortgage, real estate taxes, assessments, regular maintenance, homeowners’ insurance, furnishings, an emergency fund for disasters and major repairs.
2. Determine how often you will use it. The amount of time you will spend in a vacation home depends on the individual and family and the investment and rental potential. Some think they need to go every weekend to justify the expenses, while others are fine just visiting in summer or winter.
3. Pick the right location. What makes one location more appealing to buyers than another largely depends on your interests. In Mammoth Lakes, requirements are as diverse as “on the golf course” to ski in/ski out or simply easy access to the town shuttle.
4. Understand upkeep. A single family home requires more maintenance than a condo. Granted there will be no monthly Home Owners Association (HOA) dues but there are still costs involved.
5. Research rental potential and costs. If income is your goal, buyers should know that rental demand and dollars fluctuate with the economy, weather, location, number of bedrooms and bathrooms, and amenities. Understand rental options – will you be using an onsite property manager, a third party company or VRBO (vacation rental by owner). Each have pros/cons and different costs.
Understanding these tips coupled with the advice of a qualified Realtor® will lead to success with a vacation property.
If you have ever gone on vacation to a resort property, the odds that you have dreamed about owning a vacation or second home are very high. The many options available to prospective buyers can be dizzying. Amenities such as championship golf courses, world-class skiing, and private airstrips are just a few of the options available these days in many resort communities.
Purchasing a resort property needs to also be about the right fit for your lifestyle, what you can afford, and what the resort affords you.
The Do’s of Shopping for a Vacation or Resort Home
- Do make a budget and consider your finances before shopping for property.
- Do interview potential real estate agents to assess their knowledge about second homes and vacations homes.
- Do visit the property more than once – visit at different seasons, winter/summer, daytime/nighttime.
- Do consider resale value, even if you don’t think you will ever sell.
The Don’ts of Buying a Vacation or Resort Home
- Don’t give in to your emotions before you are 100 percent certain this property will be the destination for your future vacations.
- Don’t drain your retirement accounts to purchase a second home or vacation home.
- Don’t hire your primary residence real estate agent if they don’t have any specific knowledge of vacation home sales in the area you are looking to purchase.
- Don’t buy a property on the first visit or while on vacation to the resort community. Make it a sound business decision, not one based on your emotions – see the first Don’t.
What is the Purpose of Your Vacation Home?
You will also need to consider the primary reason for buying a resort property. Will it be your primary residence, an investment, a weekend retreat, or maybe a retirement property? Make this one of the first questions you ask yourself, before looking at any property.
If the property will be for weekend use, it needs to be within a few hours’ driving distance. If it will be for retirement, then it needs to already be or be able to be made accessible, and be located near medical facilities. If the property will be for rental income, it needs to be near a popular ski resort, lake, or river.
Extra Costs to Factor In
Vacation or second homes have expenses that your primary residence may not have. Costs such as travel to get to the resort, maintenance, especially if it will be a rental property, vacation home insurance, and property taxes, all have to be factored into resort living.
Hire a Real Estate That Specializes in Vacation or Second Home Properties
A resort real estate agent should have the RSPS or Resort and Second Home Property Specialist Designation. This ensures they have been trained extensively in resort living, how to buy and sell second home properties, and the nuances involved in resort communities. For example in Mammoth Lakes, a qualified real estate agent can advise whether the property is allowed nightly rentals should you choose to rent the property when you are not there. They should also know the area very well that you are considering. If you determine that the real estate agent you are talking to about resort properties does not have this knowledge, immediately find someone who does, otherwise you could be steered into a bad real estate deal and no one wants that.
How are your personal finances?
If you are not paying cash for your vacation or second home property, most lenders will required buyers to put down between 20 and 25 percent on a second home. Use the online mortgage calculator on my website to get an estimate of how much you can afford, how much you will qualify for, and how much two mortgages will cost you if you currently hold a mortgage on your primary residence.
Sonja Bush is a Resort and Second Home Property Specialist and is ready to answer any questions you may have about resort living, the Mammoth Lakes area in general, or about the current real estate market in Mammoth.
Since most property buyers start their search on the internet, why not head over to Sonja’s property search page on her website to see what properties are currently available in the Mammoth Lakes area. Sonja can be reached by calling her at 661.979.9000, or emailing her at [email protected].
According to real estate mogul Barbara Corcoran (you might know her from Shark Tank) if you are in the position to consider making a down payment on another property, now’s the time to do it. According to Corcoran, “It’s the smartest thing you can do right now,” adding that the second-home market is “the last area you can still get a steal of a deal.” But if you’re thinking of taking the plunge, Corcoran advises you act fast. “In the second home market, the homes are abundant but starting to shrink up.” As for Mammoth Lakes specifically, inventory levels are extremely low for both condos and single family homes.
If you decide to make a second home purchase, be sure and avoid some of the biggest mistakes made by second home buyers.
Buying Where Your Friends Live: Too often, Corcoran says, people fantasize about vacationing with or near friends and end up making a purchase that isn’t right for them.
Not Having a Budget: Set a budget and stick with it. “Look over your budget,” Corcoran says. She also adds that it’s a smart move to make a low bid on a property that is out of your price range, especially if it has been languishing on the market for months. “People who have the nicest homes always overprice, and it just sits on the market,” she adds.
Focusing on the Wrong Amenities: Don’t buy into a community because of its amenities. If you’re not a tennis player now, you won’t become one because your new development has a court. “Most people generally won’t use the extra stuff and they get blinded by all of that,” Cochran explains.
For previous articles, visit www.sonjabush.com
For more information on Ms. Corcoran, visit www.BarbaraCorcoran.com