This article references my home, Colorado, though you could apply the same ideas to any dream locale, whether it is the Mountains, the Beach, or the Lake. I love Colorado for its natural beauty and its active lifestyle. Even driving home from work, I will sometimes look up at the foothills and be in amazement of the beautiful place I call home.
On the weekends however, is when I really wish I could call the mountains home. Imagine, being surrounded by tall lodgepole pines and aspen groves. Smelling the crisp mountain air as you ride your bicycle to town. Even better, knowing you can stay the night in this paradise without having to battle the Sunday afternoon traffic down I-70 to Denver.
What if I told you there are some ways to make your dream a reality? Depending on your goals, you may even be able to leverage your second home into a revenue stream. Below are some key items to consider when searching for that second home.
Buy Where You Would Want to Play
This probably seems obvious to some, but it is worth discussing. Do you want to be away from it all? Near a lake or stream so you can enjoy fishing on the weekends? Or do you prefer the feel of small town mountain communities where you can enjoy a local café, followed by a bicycle ride on a county road? Are you a ski bum, and have dreams of ski weeks for life? Whatever you want, there is a town that offers it up. Don’t just get online and find properties that fit in your price range. Colorado is so large and diverse that a wide array of mountain properties will fit into your lifestyle and budget. Narrow your wish list down to a couple of locations, and set up property alerts so you know when something interesting becomes available.
Visualize Your Dream Property
Again, it comes back to the idea that Colorado is such a large state filled with diverse beauty that your dream property could come in many flavors. Do you want to have something low maintenance that throws you directly into a resort town? If so, there are many multi-family units in Summit and Eagle counties that may fit that lifestyle. Do you enjoy hunting, fishing, and camping? There are plenty of properties that are off the beaten path and may consist of a dwelling, or no dwelling at all. Perhaps you just enjoy the small town feel of having a home up a rural road that you can escape to when you need peace and solitude. There are many mountain towns that are not ski towns, but still host many locals with a country heart and spirit.
Paying for Your Property
Obviously, the more free cash you have laying around, the easier paying for your property becomes. Even if you end up taking out a mortgage, most lenders will require a 20% down payment for a conventional loan on a second property. Furthermore, you won’t be allowed to let debt exceed more than 36% of your total income. But just because you aren’t sitting with a big fat bankroll doesn’t mean you should give up. For example, you could leverage your retirement account to purchase the property as an investment property.
There are many organizations that offer services to structure your IRA so that it can invest in real estate. If you do go this route, there will be some additional items you will have to consider, such as the trade-off between investing in the stock market and investing in real estate. That can really be where those first two bullet points I discussed can come into play. Four out of five mountain homes in Colorado typically are vacant on any given day. If you are offering a Vacation Rental by Owner, understand your competition is intense. So whatever property you purchase has to hold a unique appeal. Even at best most hotels, which would arguably be able to get the most favorable vacancy rates, will have an average occupancy rate of 75%. Which means anywhere from 25-80% of the time your rental will be vacant. So do figure this into any decision you make when choosing to buy a second home as an investment.
If Nothing Else, Keep the Dream Alive
After looking at your finances, you may decide that now is not the right time to buy that second home in the mountains. That doesn’t mean the right time won’t come. Just as residential real estate experiences peaks and valleys, so do the markets in small towns and vacation communities. The peaks and valleys can become even more so pronounced, since people are much more willing to walk away from a second home than a first. So keep exploring the towns you’d like to live in, save up your cash, and an opportunity will present itself eventually.