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Your Mortgage: How to buy a vacation home at Lake of the Ozarks

Shawnee Mission Post Sponsor - August 6, 2019 10:00 am

Mike Miles

By Mike Miles

As the summer winds down, so do vacations. How many of you had the thought this summer (or in the past) that you would love to buy a property at the lake? It’s a very normal thought to have … especially when you look at how much you paid to rent a property (hotel room, condo, or other property type).

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We’ve all been to the Lake the of Ozarks (LOTO) before, right? It’s close. It’s easy to get there. Lots of people like going.

It’s fun to think about right? But then come the protective thoughts and questions:

  • How often would it be used?
  • Isn’t it super risky to invest vacation homes?
  • Do you have to buy all new stuff (furniture, lake toys … etc.)?
  • How would it be financed?

All very good (and normal) questions.

Most people who go to LOTO usually stay with friends or rent a house or condo. If you stay with friends, it’s easy to feel like you are imposing, and you probably don’t have total peace of mind in using their toys (boat, jet ski, wake boards, paddle boards, kayak … etc.). Plus it gets a little awkward if you want to go to the lake more than once a month. If you rent a place, it’s easy to feel like you just paid a ton of money – because you did.

If you like going to LOTO and you typically go down there once or twice a year … buy a house down there!

Buying a second/vacation home is the same process as if you were buying a primary residence. The only difference is you need to put 10 percent of the purchase price as a down payment compared to five percent (three percent if you’re a first-time qualifying buyer). While it’s certainly understandable to think that a 10 percent down payment is a lot of money, keep in mind it’s an investment in an appreciating asset.

Financing is done with a conventional loan product (same as any primary residence loan) and interest rates are not any higher (as they are when buying true investment properties).

Here is a good little nugget … you can rent the property out, too. Conventional underwriting guidelines identify that the property needs to be used by the owner for half of the year. What does this mean? It means that the property can be used by others for half of the year.

Think about this. Take the amount you have typically paid per night to rent a lake property (probably in the vicinity of $250-$350 per night) and multiply that by 150 to 180 days per year. That’s somewhere between $35,000 to $60,000 of income received. If you think I’m crazy for assuming a lake property can be rented for that many days per year … I’m not. Lots of homeowners are making income with their lake houses. Now, you may not want to rent it out for that many days, but there is a huge demand by people to rent properties during the lake season.

If you’re overwhelmed by the thought of furnishing, decorating, and then maintaining your own home away from home, there are loads of properties at the lake, typically town homes and condos, that come fully furnished (a.k.a. turnkey) and maintenance is covered by the association.

A payment on a lake property is going to be about $5-$6 per month per $1,000 financed. So, if you purchased a home for $200,000 and financed $180,000 you would be looking at a monthly payment amount of about $900 to $1,100.

As a real-world example, we have a current client who just purchased a 3-bedroom, 3-bathroom maintenance-provided town home for $132,000. He will finance $118,800 (putting 10% down), for a monthly payment of about $700. There will be additional costs dealing with things like boat insurance and repairs, but it’s very feasible to conclude that you could cover your annual costs (including payments) by renting it out periodically during the year.

If you’ve always dreamed of making memories on the lake, give us a call for a personal consultation. We’ll talk through your excitement (and your fears) to find the perfect way to make your “lake life” dreams come true.

This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain Mortgage today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268

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