With prices of real estate being very attractive lately, many people are considering the purchase of a Jersey Shore Vacation home. A lot of people plan to rent the property out to help pay for some of the ownership costs. But, the big question is, even with renting it out is: Can you afford it? Hopefully this article will help you figure out some of the costs involved with vacation property ownership.
We need to accurately estimate any new costs that you will incur as a result of this purchase and we need to estimate any income that you will receive. The difference between these two is how much you will need to spend out of your pocket on a monthly basis to afford the shore property.
Let’s analyze the costs first:
- Mortgage payment which includes taxes, interest, property insurance, and mortgage insurance if applicable.
- Any condo or association fees tied to the property. You can also expect these to rise on almost a yearly basis.
- Utilities that are not included in the association fees.
- Repairs and maintenance, if you’re handy this will be a lot less than if you pay someone else to do the work. Some people will use about %10-%15 of rents collected as an estimate
- Management fees, this is necessary if you plan to use an agent and not take the rent by owner approach. You can call an agent to get the details on pricing for this option.
- Travel expenses, if you are managing the property yourself, this can add up with today’s cost of gas. Don’t forget to include tolls in your estimates since Jersey is the toll booth capital of the world.
- Cleaning crews, this is needed if you plan to have the place cleaned between rentals. You can also do this yourself.
The only incoming funds are really the rents coming in. This can be very hard to predict as rental trends vary from year to year. Look at this website and other vacation rental websites and check the availability calendars of properties that are similar to what you are purchasing. If you find calendars that are updated regularly, this could give you a good idea. You can also talk to an agent about vacancy rates for the type of property that you are looking into.
I always like to lean to the conservative side financially. There are many accounting deductions such as depreciation, repairs, and mortgage interest that you will be able to deduct from your rents before you pay taxes, but I don’t include these in my analysis. Why you ask? Just to be on the safe side. Also expect to pay income tax on the rental income.
Once you know the costs and the possible funds coming in via rentals, then you can calculate your estimate of monthly costs. If you think you can afford the difference, go for it! You only live life once and there is a great feeling about owning your own vacation house.