NEW YORK ( MainStreet) -- Ah, summertime, when many of us have the same thought: "Oh, if only we owned this wonderful vacation place." With real estate prices still bouncing on the bottom and mortgages unbelievably cheap, it seems like a perfect time to consider a second home for vacations or eventual retirement. But be careful: The rock-bottom sales price may mask some other heavy expenses, such as shocking association fees and potentially pricy risks.
Many properties come with hidden fees, such as those for golf courses that can easily equal monthly mortgage costs.
In Vero Beach, Fla., for instance, condos in some resort communities are going for a song. Numerous two-bedroom units in one tennis and beach community are listed for less than $200,000, and many for under $150,000. If you had plenty of equity in your full-time home, you might borrow $200,000 at today's average rate of 3.85% for a monthly payment of only $937. An opportunity such as this may never come again. But if you shop on sites such as Realtor.com, Zillow.com and Trulia.com, you won't see details on the fees. That "bargain" buy in Vero Beach requires an annual tennis club fee exceeding $2,000. Then there's the regular association fee upward of $2,000 a quarter. In other words, you'd pay about as much in annual fees as on the mortgage. Many golf communities are even more expensive, often charging an initiation fee for joining the club on top of annual dues. True, the fees do buy something of value. If you stayed up north and played tennis indoors several times a week, you could spend a lot of money during a six-month indoor season, so $2,000 a year for top-quality tennis may not seem so bad. And the condo's association fee will pay for all the landscaping, road maintenance, beach cleaning, exterior painting and security costs, and sometimes even the garbage pickup and cable fees. With a single-family home you'd face all those costs on your own. But with a single-family home, you have more options. If money is tight you can play less tennis for awhile, take care of the lawn yourself and postpone the paint job for a year or two. With condo fees, you won't have that flexibility. Fall too far behind on fees and dues and the condo association can foreclose. Or, if other condo owners fall behind, your fees could be raised to keep the place going. If more than 15% of the community's owners default, most lenders will deny mortgage applications in the community, dragging down prices. On the plus side, your vacation condo may earn a tidy rent if you don't use it all the time. Your mortgage interest payment would be tax deductible, and you could write off other expenses, including association fees, for the periods the property was rented out. Rent, of course, would be taxable income. And to get the maximum tax deduction on expenses, you would have to limit your own use of the property to just a few weeks a year. This doesn't mean a second home cannot be a good deal. Prices and mortgage rates are indeed very low. But, given all the other costs, a second-home purchase makes sense only if you are in love with the property, intend to keep it for the long term and have a large financial reserve in case costs rise and rental income isn't as high as you'd hoped.