If you are like many Minnesotans, you spent the Fourth of July weekend up at a friend’s cabin.
At some point, maybe out on the lake, or after an adult beverage at the bonfire, you thought “maybe we should get a cabin.” No need to wait for an invitation. You can go any time and stay as long as you want. Heck, you could return the favor and invite your friends to your place after all these years.
But there are some other big differences between their cabin and your cabin, especially when it comes to finances.
Their cabin, their mortgage
Oh sure, you probably chip in, do dishes or buy dinner. But when you leave the property, you have no debt and no monthly payment awaits you.
In all likelihood, buying a cabin means financing a cabin (you weren’t thinking of drawing from your retirement, were you?) Getting a mortgage for a second property isn’t quite so simple. The credit score requirements are higher, mortgage rates will be higher than your primary residence, and you’ll have to have more cash on hand.
There are some options, however. If you have enough equity in your house, you might be able to simply refinance and pay for your second property in cash, or at least minimize your mortgage payment at the higher vacation home rate.
Their cabin, their maintenance
When most folks invite people up to the cabin, they make sure everything is in tip top shape before guests arrive. You didn’t have to watch them deal with the septic system, repaint the shutters, or dry out the basement. When you own a cabin, you’ll see it for yourself real quick.
At minimum, expect to take two maintenance trips to your cabin. One to get it ready for the summer, and one to get it ready for the winter. If your cabin is 200 miles away, that’s $150-200 in gas alone. That’s before factoring in cost of labor and materials or potentially taking time off of work. Before you buy, make sure you can afford repairs as they arise.
Their cabin, their toys
Nobody wants to go up north and sit in an empty room. It has probably been awhile since you have furnished a dwelling from scratch. If you are buying property on the lake, chances are you are going to want to buy a boat (your friend isn’t letting you borrow their boat), and you’ll need a truck to haul that boat.
If you can’t afford the cabin experience, consider whether it’s worth saving a little more.
Their cabin, their heirs
One perk of having a cabin is having something to leave behind to your heirs, but a vacation home is not quite as simple as a primary residence on that score. Your children might have different ideas about whether to sell it or use it. If the vacation home never becomes your primary residence, capital gains taxes may apply.
Before you dive in and acquire more property, think about how it fits with your retirement picture. You are likely to have this property for a long time, and you want to make sure this is something you can enjoy for years down the road, personally and financially.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.