Buying a vacation home offers a family retreat with potential rental income. Discover how to maximize your vacation rental for increased profit.
Chances are that you have dreamed about owning a Spanish vacation home for quite some time and you are not alone. Deciding where to buy a vacation home in Spain is overwhelming. Start with an area that you are familiar with and frequent often. Decide if you are interested in a vacation condo on the beach or a log cabin in the mountains. Both types of properties offer on-site amenities and year-round income, but it is best to narrow down the type of property and geographic market before you begin your search.
Select the Right Location for Your Vacation Home
A beachfront property performs best in Spain. Spain’s climate allows year-round use of a vacation property. In the winter months of December, January, February, and March offer premium vacation rental rates. For example, a typical property for sale in the popular resort of Javea, with ocean views that costs about $400,000 can easily command a minimum of $3,000 per month during July and August. In addition, these beachfront rental penthouses and apartments offer a slew of amenities like on-site gyms, heated pools.
The key to purchasing a beachfront rental condo is the proximity to the beach. The closer the vacation property is to the beach the more expensive it is. It is best to locate a beachfront rental property with ocean views which would bring in the most rental income.
Although many markets in Spain provide beautiful vacation condos many have limited vacation rental opportunities. For example, the beachfront rentals are popular on the Jersey shore, but only rent during the short summer months. This limits the vacation rental income opportunity.
Whether you are buying a beachfront rental or a vacation cabin in the mountains always ask about possible rental restrictions. It is best to buy vacation properties that have no rental restrictions.
Obtaining a Mortgage for the Vacation Property
Banks classify vacation properties based on the distance the vacation property is from your primary residence. Properties located within 40 miles and under are classified as investment properties regardless of whether they are in a resort or not.
Banks also consider potential rental income. If the property is rented for more than fourteen days a year, the banks consider the vacation property an investment property. Investment properties loans offer higher mortgage rates. Many banks charge up to a half of a percentage of interest or higher because of the added risk that the loans pose.
Financing options for buying a vacation rental include a traditional fixed-rate mortgage for 30 or 15 years, as well as a hybrid mortgage which provides a fixed interest rate for the first few introductory years and then mortgage goes to a variable rate. An adjustable rate mortgage otherwise known as an ARM also provides financing options bearing an interest only mortgage that offers substantially lower mortgage payments but does not apply payments toward the principal of the mortgage.
These mortgages charge closing costs to process but obtaining a home equity line of credit does not. A home equity line of credit allows a buyer to pull out existing equity from a primary residence in order to place a down payment or even finance another vacation property entirely.
This method of financing can also be used if the bank does not offer financing for a particular vacation property due the high number of defaults in a building. A home equity line of credit works as an interest only loan, but usually offers a competitive interest rate with lower monthly payments and shorter payback time. Most home equity lines of credit can be renewed at the end of the loan if necessary. Bankrate offers a list of national mortgage rates as well as rates on home equity lines of credit from leading banks.
Buying a vacation property requires research. As exciting as purchasing a vacation home is, staying focused on the transaction allows for a sound investment as well as a beautiful retreat. Do not buy the first vacation rental you see. Give yourself time to see what options are available, by viewing many vacation properties before deciding on the right one.