Before Becoming a Landlord, Add up the Costs

The lure of rental income has emerged as a big driver for vacation-home purchases. A recent National Association of Realtors (NAR) survey shows that 92 percent of 2012 vacation-home buyers said they planned to rent their property within 12 months. Furthermore, 76 percent said the potential for rental income influenced their decision to make the purchase. More and more older buyers who are approaching retirement age are taking the opportunity to buy a high-end second home at a more affordable price now and rent it out until their retirement. Driven by low prices and low interest rates, vacation- and investment-home sales were strong throughout last year. NAR officials say vacation-home sales accounted for 11 percent of all residential transactions, an increase from 9 percent just four years earlier. The volume of loans for second homes rose about 15 percent last year at Michigan-based Shore Mortgage — an increase that definitely carried into the luxury vacation-home market. According to Shore Mortgage President David Hall, a jumbo borrower who plans to rent can expect to make a 30 percent down payment and an interest rate about one-eighth to one-quarter percentage point higher than for a standard second home. He adds that his and other firms are also asking buyers to show proof of cash reserves totaling at least six months of loan payments and a credit score of at least 720. With second homes, a higher credit score may mean some relaxation on the amount needed in reserves, Hall concluded. | Read More