Bought any sunscreen lately? Did you choose based on the SPF or the UVA rating? Or the UVB? Do you have a clue? I didn’t, so I looked it up. Here’s the scoop.
There are two types of ultraviolet light we need to filter out. UVA is the type that causes skin aging and skin cancer. It’s sneaky–it doesn’t feel like it’s burning you, but it’s penetrating deep, causing more damage.
The other type is UVB. It’s the painful one that literally burns the topmost layers of skin.
SPF (Sun Protection Factor) tells us how much UVB light is being filtered out. The marketing purpose of the SPF number is to tell us how long we can stay out in the sun before we burn. For instance, SPF-30 means we can stay out 30 times longer than if we had no sunscreen on. Not 30 minutes…30 times, which is a meaningless number, since most of us don’t know how long we can stay out with no sunscreen in the first place. Furthermore, the SPF factor only protects against the burning kind of UV, not the cancer-causing kind.
So instead of trying to parse it all out, just go with what dermatologists recommend: Use a broad spectrum UVA/UVB sunscreen to protect against both types of ultraviolet light. Reapply it every 2 hours.
From Fastnewleters August 2021
Click link below to read our monthly newsletter.
Don’t forget to answer our monthly quiz question for a chance to win a coffee gift card.
PERHAPS YOU WERE VACATIONING IN A QUAINT MEXICO HIDEAWAY, AND YOU THOUGHT, “HEY, WHAT IF WE BUY A HOME HERE, AND RENT IT TO TOURISTS LIKE US? WE CAN RETIRE HERE WITH OUR HOME PAID OFF!” WHAT IF? IT MIGHT NOT BE A BAD IDEA. READ ON…
Sometimes it works out perfectly. Often it doesn’t. But with careful planning, it is possible to get some, or even a large portion of your vacation home expenses and costs paid for. This article will help you evaluate the real possibilities.
GOALS OF OWNING A VACATION HOME
What are your vacation home goals? This is a major investment, so you don’t want to rush into buying a vacation home on a romantic whim. Here’s an example of goals: “I want to use my vacation home two weeks every year over Christmas and two weeks in the summer. I want the rental income to at least cover my mortgage, and if possible, some of my other costs. In ten years I want to retire to my vacation home.”
Once you have a clear goal in mind, evaluate, evaluate, evaluate. Add up the costs of owning, the income you can produce from rents, the likelihood of getting the rents you need to cover costs, the cost of your down payment vs. simply holding that money in other investments until you’re ready to retire, and finally, the reason you think owning in this wonderful place outweighs simply renting when you visit.
Below is some guidance on each of these questions.
ADD THE COSTS OF OWNING (NOT INCLUDING DOWN PAYMENT)
Start with your fixed costs, which include your mortgage, property taxes, home owner association (HOA) dues, homeowner insurance, and liability insurance for a rental. Plus the cost of a property manager if you’re using one.
Then include your variable costs, which include utilities, maintenance, and rental operation costs (cleaning, finding renters, potential down-time, other expenses…some of which will be included in the cost of a property manager). The utility costs can include telephone, heating and air conditioning, electric, water, cable TV, telephone, etc. All of these costs will vary according to the location, the unique vacation home itself, and the number of services you’ll provide. Also include estimates for annual repair and maintenance.
EXAMPLE: Beach cottage in Mexico – $380,000
- Let’s say that your costs for this little slice of heaven include $1,400/mo for mortgage payments, insurance, HOA, and taxes. That comes to $16,800/yr.
- Your property manager runs $240/mo, or $2,880/yr.
- Variable costs run $165/mo for utilities (all), or $1,980/yr.
- Now add in a maintenance factor (which will depend somewhat on the type, age, and condition of property you buy), let’s say it’s $200/mo, or $2,400/yr. That’s money you want to put aside until needed.
- Also add one month of downtime, just to be on the safe side. If rents are $1,600/mo, that’s an extra $1,600/yr you need to put aside to cover costs when there’s a month with no renter. It happens.
- Your total to purchase and maintain this example vacation home would be $25,660/yr, or $2,138/mo.
You have to ask yourself if that’s a worthwhile expenditure. Will values rise in the location, so you can resell? Perhaps you’re afraid values will rise before you retire, pricing you out of that location? Are rents rising, so you’ll always be making money? These are the questions to ask before making an offer.
DO A REALITY CHECK – WHAT’S THE RENTAL REALITY?
The big question is this: If you need the home to pay for part or all of your expenses, how many nights will you need to rent it? Are you better off with a long-term renter who might pay a little less, or short-term vacation renters who might pay more, but leave gaps in your income?
The answer to these questions depend on a number of factors including the tourism draw of the area, the amenities of the vacation rental, and whether the location is a two season or one season tourist destination.
To learn about the best options for the properties that interest you, consider the following:
The first thing you will want to check on is the rental history of the vacation home itself, if it has been rented in the past. If that information is not available, then you have no choice but to estimate. Rental rates vary dramatically from one area to another, even street by street.
Some rental management companies will rent your property as part of a pool of available properties, and all the rental income from all the properties is pooled and divided equally among all property owners. If that’s what you’ll be doing, then your income results may be lower than if you were to rent it directly, so you’ll want to consider that in your estimates.
EXAMPLE: Mountain Cabin Nightly Rental (like Airbnb)
Suppose you find a nice mountain cabin in a ski resort area. You want to analyze the potential return based on making it into an Airbnb rental.
There are 365 nights in a year. Let’s say you want to personally use the cabin 30 nights per year. That leaves 335 nights available to rent it out.
A key factor that comes into play for nightly rentals is timing. Your property will not rent for the same amount each night of the year. It’ll vary based on the time of year, the day of week, and holiday seasons.
Consider that if you plan to use the best 30 nights of the year yourself, then you’ll potentially lose some of your highest income nights. You’ll want to adjust your averages if that’s the case.
Next, you’ll want to estimate how often you’ll be able to rent the property, and in what seasons and days of the week. Once you complete that analysis, you’ll have a better idea if this is a worthwhile investment or not.
Suppose your peak season is January and February. You can get a 75% occupancy during those 60 days. That means you’ll have it rented at peak rates for 46 nights.
Your two shoulder season months (60 days) may rent at about 50% occupancy, yielding you 30 more nights rented.
Now you’ve rented the property for a total of 76 nights.
Suppose the remaining months of the year (8 months), you can rent it every other weekend, but can’t count on anything during the week. That’s 32 weekends possible x 50% occupancy = 16 nights.
Now your rental nights total 92 nights out of 365. Suppose all your expenses come to $37,000/year. You’d need to get $402/night average (some more, some less) to make that work. That would have to be a truly amazing property!
Clearly, this would not be a great investment. Mountain cabins are harder to rent, and often have smaller high seasons than tropical properties (for example).
But this analysis gives you some idea of how to play with the variables.
Remember, this is just a first pass to help you dream and plan. You’d still want to review your figures with your accountant or financial planner. There are other factors to consider, such as rising rents or property values, your down payment, proximity to where you live now (so you can manage it yourself), and so on.
OTHER VARIABLE COSTS TO CONSIDER
This is not a complete list, but it includes some of the most common additional costs most people do not think about.
- Furniture and equipment used in the vacation home
- Linens and towels
- Goodies and other touches that make staying in your home nicer
- Special assessments by the homeowner’s association (such as roof repairs)
- Local taxes and assessments
Everyone’s tax situation is unique. You should definitely seek the advice of a tax professional before purchasing a vacation home. Depending upon your specific circumstances, you may find that a rental vacation home is tax advantage. There may be ways to use your property to create a tax advantage. Your tax professional can advise you about such things as trusts, depreciation and capital appreciation/gains.
Often vacation home owners find that rental operations cover some if not all of the annual costs while the appreciation of the property’s value over time can be substantial.
You may want to consider factoring in an annual appreciation percentage to determine the total financial picture for your vacation home investment. Depending on your goals, you may be able to refinance and lower your payments significantly in the future.
WHEN ALL IS SAID AND DONE…
Owning your own vacation home and renting it out can be a rewarding experience or a disappointment depending upon your expectations. When buying for a combination of investment and personal use, it is always good to have realistic expectations, clear goals, and the advice of your financial professionals.
Your tax or financial professionals might be able to help you prepare a budget forecast of the property over your holding period. He or she can project the revenue and costs, plus potential property appreciation. That forecast will give you a complete picture of the potential upside or downside for your investment.
If you or someone you know is considering buying a vacation or second home in our area, I can help locate ideal properties and provide the data needed to evaluate it.
Article From: Fast newsletters month reports July 2021
Saving for a down payment isn’t like saving for retirement. You don’t have decades to watch compounding interest work. You need money now, as fast as possible.
Well, when it comes to buying a home, fast is relative. You’d like it now, but maybe six months from now is OK, or a year from now. If you follow these 6 principles for saving for a down payment, you’ll find the money does add up, and before you know it, you’ll be in a home of your own:
How to Save for a Down Payment
FIRST FIGURE OUT HOW MUCH YOU NEED TO SAVE IN TOTAL.
It helps to have a target. For example, if you know you’ll need to save $28,000, you can work backwards to see how much money you must put away each month to reach that $28,000 goal by your end date. You’ll also feel more motivated by seeing your account march closer to the target each month.
How do you know how much you’ll need to save?
There are two amounts you’ll need to save before you can buy a home:
- Down payment
- Closing costs
Closing costs are typically 2% to 5% of the purchase price of the home. If the home costs $280,000, and your closing costs are 3.5%, then you need to save $9,800. 3.5% is a good average to have in mind as you start saving.
But you also need to know what price of home you can shop for.
Down payment is often the deciding factor in what people shop for. Down payment is the difference between the price of the home and the amount of your mortgage. If the home costs $280,000 and the bank will allow you to have mortgage of $240,000 (based on your finances), then you need to come up
2 | Page Your real estate advisor for life!
How to Save for a Down Payment
with a down payment of $40,000 (the difference between the two).
However, it’s not as straightforward as that. Suppose you agree to put 20% down on a home. If you do that, the interest rate improves, and you get rid of mortgage insurance. So if you can save $56,000 (instead of $40,000), you might be able to buy a house for $300,000 for the same amount of monthly payment.
$40,000 or $56,000? It’s a big difference. And to make things even more complex, you can buy a house with as little as 3.5% down payment in many locations (not all). So if the bank said that was OK, they’d tell you what interest rate you’d get, and you’d know how much house you could buy with that down payment.
With a 3.5% down payment, you may only be able to buy a home costing $238,000 (in this example)…but you’d be a home owner and only have to save $8,330 in down payment. Add your closing costs, and you’d need to save a total of $16,660.
So down payment amount matters. With more down payment, you can buy more house…not just because you have more money, but because you also get a better interest rate.
Talk with a lender. Find out what mortgage amount you qualify for. Then decide how much down payment you’d need to buy a home or condo in the neighborhoods you want, or would be comfortable in. Then start saving like mad!
Here are some suggestions…
3 | Page Your real estate advisor for life!
How to Save for a Down Payment
STEP 1: DECIDE WHEN YOU WANT TO BUY & HOW MUCH TO SAVE EACH MONTH
If you need $16,000, and you want to buy in one year, then you need to save an average of $1,333/month. If you plan to buy in three years, then you need to save $444/month.
Or you can look at it in reverse. If you know you can only save $350/mo extra, then divide your downpayment amount by $350 to get the number of months needed:
$16,000 ÷ $350 = 45.7, or 3 years and 8 months. But take heart! Keep reading…
There are other ways to get some down payment money besides saving for it month after month. Talk to me about special home buyer programs that help with down payment assistance. There also may be low-down payment loans available for certain classes of jobs or for buying in certain locations. Get the facts before throwing your hands up!
STEP 3: CARVE OUR EXTRA SAVINGS OR MAKE MORE $$
On a monthly basis, can you reduce your car payment by $50/mo? Can you eliminate some subscriptions and save $60/mo? Can you cut out $100 worth of eating out each month? Put all that extra money in savings.
4 | Page Your real estate advisor for life!
STEP 2: LOOK FOR SPECIAL LOAN PROGRAMS AND LOCATIONS
How to Save for a Down Payment
Also, can you find a side gig to make an extra $200/month or so? Into savings.
What about getting a raise at work? Or getting money from a relative? What about your tax refund? Into savings.
All of these are ways to speed up your savings.
It’ll be hard work and there will be sacrifices of time and luxuries. But keep your goal in mind, and remember why you’re buying this house…to create stability, to provide for your future, and to have something to call your own.
Up to now, it’s all been about the planning. Now you need to make the savings really happen. Once you decide you need to save an extra $350 or $1,000/month, and you have identified where it’s going to come from, create a system to make it happen.
You can ask your workplace to withdraw more from each paycheck and perhaps they’ll even deposit money into separate savings accounts for you. If you don’t see it, it’s easier to save.
You can automatically move money into savings every pay day. Your bank will likely have a program to do this.
If you’re working an extra job, you can put all that money into a separate account.
5 | Page Your real estate advisor for life!
STEP 4: HERE’S WHERE THE RUBBER MEETS THE ROAD: SET UP AN AUTOMATIC SAVINGS SYSTEM.
How to Save for a Down Payment
If you’ve reduced your car payment by $100, your subscriptions by $60, and your entertainment by $80, then put $240 into savings the first of each month. You don’t want to have to think about it. Just make it routine.
BUT DON’T NEGLECT YOUR EMERGENCY FUND EITHER. YOU MAY DISCOVER THAT TO CREATE AN EMERGENCY FUND, WHICH IS TYPICALLY SIX MONTHS’ WORTH OF INCOME, YOU NEED TO POSTPONE YOUR PLANS FOR BUYING A HOUSE UNTIL YOU HAVE ENOUGH CASH RESERVES BUILT UP.
STEP 5. PAY OFF CREDIT CARDS AND ROLL THE PAYMENT OVER.
If you have three credit cards, start paying extra payments on the one with the least left owing. Once you pay that card off, take the entire payment you were making on that first card and apply it to the card with the next lowest balance, including what you were already paying on that second card. Keep doing that until your cards are paid off. Don’t close the cards, but do pay them off. Once they’re paid off, add up all the money you were paying each month on those cards and put it into your savings each month. Don’t go buy anything more on credit for a good long while.
STEP 6. REWARD YOURSELF ALONG THE WAY.
Create a chart, like a thermometer, with your target at one end. Then color in the money amount you save each month and watch it get closer to your target. Look for extra ways to add
6 | Page Your real estate advisor for life!
How to Save for a Down Payment
more to your thermometer each month. It sounds corny, but it really works to help keep you motivated!
Don’t let down payment money stop you from owning a house. Even if it can’t happen right away, that’s no reason not to plan for it down the road. And who knows…it may be able to happen right away.
CONTACT ME TO TALK ABOUT SPECIAL DOWN PAYMENT ASSISTANCE AND LOW DOWN PAYMENT LOAN POSSIBILITIES. EITHER I CAN ANSWER YOUR QUESTIONS, OR I’LL INTRODUCE YOU TO SOMEONE WITH EVEN MORE SPECIALIZED KNOWLEDGE.
Resource: Fast Newsletters Monthly Free Reports June 2021