We all need a place to retreat to - whether that’s getting closer to nature or getting back to the city for some work and play. With more flexible work arrangements, owning a getaway property makes way more sense than it used to. As a result, demand for second homes is far greater than it was pre-pandemic.
One of the drawbacks of a second home is that it’ll sit empty a lot of the time. Bearing the full cost of owning a property you only use part of the time can feel misaligned or wasteful. There are a few ways modern home-buyers are solving that problem.
Rental Income - Many owners find success in listing their home on a short-term rental platform like Airbnb when it’s not in use. The rental income helps defray some of the ongoing expense of holding the property. These “hybrid” getaway/investment properties have grown massively in popularity in the last few years, both in vacation destinations and in getaway markets surrounding large metro areas.
Co-Ownership - Becoming an Airbnb-lord isn’t ideal for everyone. Maybe the solution isn’t rental income - it’s a partner. Owning a getaway home with a close friend or family member not only can make a lot of financial sense, but it can also provide an opportunity to deepen the connection. Shared getaway homes can also help make property ownership a little easier by dividing the responsibilities. (Check out our companion guide on Co-Ownership here.)
Collaboration & Community - Another approach we see successful buyers take is to make their home-buying and homeownership journey collaborative. Examples of this approach include making friends and family a part of your home-buying plans so that the property can be a gathering place for your community. Another is setting up a friends and family program for rent or for rent-free use when the property isn’t occupied by the owners. You may even find that sharing the property in this way extends it’s value to you, fosters community, and even reduces the burdens of ownership.
Is it right for me?
There are few specific ways our clients are finding success with getaway homes:
Second home first - Let’s say you live in an expensive city where you’re currently renting. And maybe buying a place there won’t be financially feasible for quite some time. Or even if you could technically afford to buy, maybe you don’t want to feel tied down by owning an expensive place in the city. But at the same time, the thought of never becoming a homeowner doesn’t sit right with you. Buying your second home first in one of your favorite getaway or vacation markets might be the right move for you.
The escape home - Many of us have more work-life flexibility than we ever did before. Some of us can work entirely remotely while others have hybrid work arrangements. For city dwellers, this flexibility has increased the attractiveness of owning an escape home generally located in countryside, mountain, or beach locations 2-3 hours outside the city.
The do-it-yourself (DIY) “timeshare” - Many of us have traditions that bring us back to the same places each year, such as annual ski trips with family, golf outings with old colleagues, or beach weekends with college friends. We often wonder if it would make sense to buy the place we rent each year. By splitting time in a vacation home, the property functions sort of like a private timeshare but without the drawbacks of a corporate timeshare. Today, more and more groups of friends or family are doing more than just talk about it - they’re making it happen.
How would this work financially?
The good news is that is that it’s never been easier to buy and own getaway homes the way you want to.
If you’re considering buying a getaway property that you want to Airbnb it on the side, there’s a wealth of data and information to help you take some of the guesswork out of the decision-making process. And there are loans that are specially designed for rental properties, like Debt Service Coverage Ratio (DSCR) loans. The key is finding a lending partner who can help you navigate the data to inform your decision-making process at a market-level and at a property-specific level - and then will help you get the right mortgage product based on your particular situation.
If you’re considering co-buying a getaway home with friends or family, a key considerations is to align around the ownership split. The most common way is to divide the property equally among the owners. But it doesn’t have to be this way. Ownership splits can be set up to accommodate owners who may have different financial situations. Alternatively, opportunities for usage might not be equal, so some owners might want to align their investment with their expected usage.
The next big question is - can I get a mortgage for how I want to own? The answer is yes. There’s a wealth of different products that are custom made for these ownership use cases. The problem is that most of the loan officers at banks aren’t familiar with them. They key is finding a mortgage advisor who can understand your unique scenario and advise you on the best product and structure for your purchase.
Stuga, unlike an online lender or standard mortgage broker specializes in these types of loans and partners with 70+ lenders to make sure we find the right product at the right price.
What else should I be thinking about?
Compared to owning a traditional primary residence, buying a getaway home involves a greater variety of decisions that need to be made. There’s just more questions you need to navigate. Here are some top tips to help you get to the closing table sooner:
- Location: A sensible place to start when it comes to real estate, as you may have heard. But when buying a getaway property, there’s a wide range of markets you can consider. It can seem vast and overwhelming at first. Hopefully you’re considering buying in a market you’ve been visiting and have some familiarity with, but if not, that’s ok too. The best thing to do is start exploring intentionally. Another question that comes up is around the financial attractiveness of markets of interest: is the market I like a “good” market? Your agent should have a perspective on this question. If you’re also interested in supplementing it with a data-driven approach, we’ve got you covered.
- Know what can you afford: It can be surprisingly tricky to know confidently how much you can really afford. Mortgage calculators only tell you part of the story. And oftentimes, there’s a difference between the loan amount you can technically “qualify” for and what you can comfortably afford. There are a few rules of thumb, like the 28/36 rule (housing expense less than 28% of gross monthly income and total debt less than 36% of gross monthly income). There’s no one-size-fits-all answer as to what’s right for you and your unique situation.
- Structure it the right way: If part of your plans include owning with a partner - an unmarried romantic partner, friends, family, a business partner, etc., - a well-crafted co-ownership agreement is essential. At its most basic level, a co-ownership agreement describes how the property will be owned, operated, and exited. A lot of owners skip this step to avoid the hassle and expense of putting together an agreement but we discourage this. Much like getting an insurance plan its something you do for the peace of mind that you are covered if things don't go according to plan.
Stuga's platform goes beyond just finding the best rate on a mortgage. We help you get a full picture of what a home will cost and how much you can afford. And while we are at it we also let you generate a customized ownership so you can save on legal fees.
Ready to get started?
Stuga is your one-stop shop for purchasing a getaway home. Based on your specific ownership scenario, we’ll get you the right mortgage at the best price, and we’ll bundle that with everything else you need to buy and own confidently: rental revenue estimates, property valuation reports, co-ownership agreements, and much more.
