If you own a primary home or commercial real estate, buying a vacation home will feel like a familiar process. However, there are some key differences you need to be aware of throughout the process, so you can feel confident when buying vacation home real estate.
If you’re curious about buying a vacation home, your search has two parts: location search and property search. But, thanks to today’s technology and our network of agents, you’re not limited to searching for vacation home real estate that’s close to home.
Let’s think about your location search first. Say you want a home in a specific ski town two hours away from where you live. With a little research, it may be possible to find a better financial fit with vacation home real estate near a resort that’s six hours away.
Throughout your location search, you’re also considering individual properties. Maybe you want a cabin, but will it give you the square footage you need for the right financial return? What do the numbers say when you look at a larger mountain home? How do those numbers compare with the potential returns on a cluster of condos near the resort?
True investors are often less attached to specific locations and more concerned with income-generating potential, so they expand their search to multiple states.
Your search may not end where you first imagined it would. If you have financial flexibility, it can be very rewarding to keep an open mind about the location and type of vacation home real estate to buy.
What’s more important to you: buying a second home that’s your dream vacation home, or buying a vacation home that’s a profitable vacation rental investment?
Often, when you estimate ROI, examine cash flow, and estimate net operating income (NOI), one home in your search can clearly stand out as the winner in a purely financial sense. But, if you’re not using a real estate investment checklist, or you’re buying a vacation home for personal use, you may have to make some compromises—at least as a first-time vacation home real estate investor.
So, define your search beyond buying a cabin with three bedrooms and two baths. Those are important factors in your list of needs, wants, and deal breakers, but it can be helpful to have some other decision-making triggers that help you say no to interesting (but distracting) properties that don’t meet your goals.
Once you’re actively searching for vacation home real estate, you want to be pre-approved for any financing. In hot vacation destination markets, a pre-approval really puts you in a position of strength because you can move on a property quickly. Your pre-approval also sends a signal to sellers, letting them know you’ll be buying a vacation home based on a credible offer they can trust.
Pre-approvals lock in your loan rate. Typically, they last 90 days.
Here’s a list of items needed for pre-approval when buying a vacation home:
When you’re buying a vacation home, different lenders may pre-approve you for different amounts or at different rates. Lenders are beginning to factor in historic rental income in their lending products, too. For example, if you already have a vacation home or another rental property that earns income and lowers your debt-to-income ratio, lenders should look upon that income favorably. That’s why it’s important you work with an agent who can help you take as much data as possible to your lender.
As you find vacation homes that appeal to you, you want to run plenty of numbers to calculate your potential return on investment (ROI). As vacation home real estate experts, we can also share an estimated monthly cash flow analysis for individual properties, plus operating expense estimates and net income estimates.
Once you learn to use this data, you may be surprised to discover that vacation homes selling for the same price can actually have very different cash flow potentials once they become vacation rental investments. When you factor in short-term rental data around location, square footage, bedrooms, bathrooms, HOA fees, property taxes, and other amenities, you may find yourself more attracted to a specific type of property or a core location.
You think you've found The One—how exciting!
Here’s what typically happens next:
Keep in mind, if you plan to finance, expect to put 1%–2% of the offered price down as earnest money, as it indicates good faith as a buyer. If you are offering cash, some sellers may request as much as 10% in earnest money. Your agent can write your conditions to help protect your earnest money in the event your home inspection (or other deal conditions) is unsatisfactory.
The seller may come back with their acceptance or denial of your offer price or conditions. You can counter their offer as well. Negotiations continue until both you and the seller reach a consensus, or until you decide to walk away should the seller not meet terms agreeable to you.
This negotiation stage is where having an agent with expertise in vacation home real estate can yield real value for you as a buyer.
With your agent’s insights into the local vacation rental market, plus the home’s rentability, income estimates, and cash flow potential, you’re in a position to make a strong, fair, and compelling offer to the seller. Plus, an agent with vacation home expertise can help write your terms and conditions to not only position your offer to sellers, but protect your interests after the results of your home inspection and appraisal, too.
Once both parties have agreed on the terms in the offer, you have mutual agreement. Mutual agreement determines your purchase price, and you are well on your way to buying a vacation home.
Congratulations! This is an important milestone to celebrate… but there is still plenty of work to do to get you to the closing date and get those keys in hand.
If you’re planning on buying a vacation home with financing, your agent communicates mutual agreement to your lender. With that, you complete your full loan application (your pre-approval was based on a preliminary application), and your lender can start the underwriting process. Processing time for the full loan application can vary, but you can expect at least one week during normal business times.
If you plan to pay in cash, you’ll need to make sure your funds are liquid and secure. You can start planning to deliver a cashier’s check once the final steps in the vacation home sale process are fulfilled.
Some sellers will conduct a pre-inspection. It’s a good idea to get your own home inspection, too. In fact, if you plan on buying a vacation home to use as a vacation rental, many markets will require the inspection.
Depending on the inspection results, this may be the time where you renegotiate the property’s price, given any repair costs you’d assume after the close. You can request that the seller make concessions to address those repairs and/or lower the price.
Keep in mind that inspection results, and resulting seller concessions, can make or break your vacation home real estate deal.
You can put your deal at risk by asking for too many minor repairs, even if they are warranted (nobody likes to be nickel-and-dimed). Work with your agent to identify the items and concessions worth asking for with this particular piece of vacation home real estate.
Sometimes sellers will concede to performing repairs or lowering the price on vacation home real estate. Sometimes they will hold fast to the expectations set in your initial offer.
Based on the seller’s response to any concession requests, you have the choice to move forward with buying a vacation home or to walk away from the deal, often without losing your earnest money.
Tip: If the seller agrees to complete repairs, you or your agent will want to walk through the property to make sure the work was completed to expectations. Be sure to work with your agent and the seller to set that condition.
When you’re buying a vacation home, if you put up an all cash offer, you are not required to have an appraisal.
If you are financing your purchase, lenders want to ensure the vacation rental you intend to buy is worth at least as much as what they agree to lend you. That’s why they require an appraisal.
Your appraisal can protect you from overpaying for vacation home real estate. Depending on the results of the appraisal, you may be able to renegotiate or walk away from the purchase if the appraisal results are less than the purchase price defined in the previous mutual agreement.
Tip: Work with your real estate agent to schedule your vacation home appraisal for a date after your inspection report comes back. If the inspection results lead you to back away from the deal, you can cancel your appraisal. Appraisal fees are non-refundable, and you don’t want to spend money on them if the inspection report turns out to be a deal killer.
If you're toying with the idea of buying a vacation home to use as a vacation rental, or if you’ve already decided to welcome short-term guests, this is the time to start thinking about vacation rental property management.
Renting out your second home as a vacation rental can deliver significant income, and working with a trusted property manager means you can enjoy your home more when you come to visit. If you haven’t already, it can be helpful to run data-driven vacation rental income estimates.
If you and the seller come to final agreements, you move to close on the property. Congratulations!
Once your loan is approved, your lender will submit the loan documents to the title company. From there, the documents will be processed for signing and prepared for submission to the county. You will come to closing with your check for the down payment and all other closing costs. (The title company can help you know what that amount will be.)
After both you and the seller have signed the appropriate paperwork, the title company will ensure that the funds transfer from the lender’s bank account to the seller’s bank account. The title company will also submit the documents to the county for recording. Once the transaction is funded and recorded, you will get your keys on the aforementioned closing date.
If you’re buying a vacation home with cash, a typical closing scenario would involve you bringing a cashier’s check to the title company at closing. Then, the title company will deposit the cashier’s check into their own bank account. After the seller signs their documents and the title company gets the transition of the deed recorded at the county, the title company wires the payment funds to the seller’s bank account.
Procedures may vary from state to state, but the system is typically set up to make it simple and easy for a buyer to pay in cash when buying a vacation home.
Whether you pay in cash or close with a loan, in some states, as the buyer, you may not need to appear at the closing. Title companies will either send a notary out for signing the documents at a location convenient to you, or the title company can arrange a “courtesy signing” at another title office that’s closer to where you are.
Once the home is yours, you can begin to earn income on your vacation home. If you haven’t already started planning for vacation rental considerations, keep these questions in mind:
As the leading professional vacation rental property management company in the U.S., we know firsthand the kind of income you can earn when your vacation home real estate is truly working for you.
Vacasa offers property management and other real estate services directly through Vacasa LLC and through Vacasa LLC's licensed subsidiaries. Click here for more information about Vacasa's licensed real estate brokerage/property manager in your state. Vacasa’s licensed real estate brokerages/property managers include: Vacasa Alabama LLC; Vacasa Arizona LLC; Vacasa Florida LLC; Vacasa Louisiana L.L.C. (licensed in Louisiana); Vacasa Michigan LLC, 947-800-5979; Vacasa Nevada LLC; Vacasa New Hampshire LLC, P.O. Box 283, Conway NH 03818, Dave Grant, Broker of Record; Vacasa New Mexico LLC, 503-345-9399; Vacasa New York LLC, 888-433-0068; Vacasa North Carolina LLC; Vacasa Pennsylvania LLC; Vacasa Real Estate LLC (licensed in Idaho and Oregon); Vacasa Real Estate LLC (licensed in Colorado, 720-727-9358); Vacasa Real Estate LLC (licensed in Washington, Robert Brush, Designated Broker); Vacasa Resort Rentals of Hilton Head Island LLC; Vacasa South Carolina LLC; Vacasa Tennessee LLC; Vacasa Vacation Rentals of Hawaii LLC, 3350 Lower Honoapiilani Road, Suite 600, Lahaina, HI 96761; Vacasa Vacation Rentals of Montana LLC, Rickie Miller, Licensed Property Manager; Vacasa Virginia LLC; Vacasa Wisconsin LLC.
*This document is for information and illustrative purposes only. It is not intended to provide “investment advice” or a “recommendation” regarding a course of action. The discussion is general in nature and has not taken into account your personal financial position or objectives. You should consult a licensed financial advisor or other professional to discuss your specific situation.