Arizona Tribune - How to Turn Your Favorite Vacation Spot into a Smart Investment

Consider the pros and cons

While owning a vacation home may sound like a perfect idea, you shouldn't jump in until you understand the risks and the benefits. Investing before you're ready may set you up for failure. The advantages and disadvantages depend on your unique circumstances, but you may consider the following.

Pros

• Stress-free vacations. Owning a vacation home means you don't have to worry about booking a hotel months before your trip. Travel whenever you want to.

• Extra income. Supplement your paycheck (and offset some of the cost) by renting out your vacation home when you're not using it.

• Investment in your family's future. Your loved ones may make new memories in your vacation home for decades to come. It could also become a valuable asset, especially if you buy in a desirable location with rising property values.

Cons

• Cost. Purchasing real estate is rarely cheap. A vacation home usually means taking on a second mortgage unless you have substantial savings. Make sure your second property generates enough income to offset some (or all) of the cost or that you spend enough time in your vacation home to make the expense worthwhile.

• Upkeep. Maintaining a second property can be expensive, especially if you intend to rent it out. You may outsource the work, but that adds an extra expense, so it's important to budget accordingly before you purchase to make sure you can cover regular maintenance like updating the HVAC system, getting a new roof, or replacing the floors.

• Limited flexibility. After you purchase a vacation home, you may not want to spend as much time-or money-exploring new destinations, especially if you have a limited travel budget.

Do your homework

You already know what makes your favorite destination great, but extra research can help you identify the perfect spot for your vacation home. Make sure you understand year-round tourism. Maybe the beach town you visit every summer has a bustling farmers' market in the fall or an art scene you haven't explored, for example.

The right spot should strike a balance between popularity for short-term vacation rentals, growth for long-term value appreciation, and your personal enjoyment. A local real estate agent can offer you unique insights into the region, like information about property values over time, school districts, and infrastructure development.

Set the right budget

Purchasing a vacation home is a major financial decision, and it's essential to make sure the price is right. Consider upfront costs-like your down payment, closing costs, renovations, and furniture-as well as long-term costs-like your mortgage payments, utilities, insurance, maintenance, repairs, and property taxes. Rental income may offset some of these expenses, but renting comes with its own price and tax implications. A trusted financial advisor may be best suited to help you navigate the process.

Enjoy your vacation home

After the stress of purchasing your vacation home is behind you, enjoy spending time in a location you love. With a place of your own, you can relax, show your family and friends what makes your favorite destination special, and create lasting memories.

Contact: Don Klein, 1-800-323-7033

SOURCE: Northwestern Mutual

A.Anderson--AT