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

Summer may be just getting started, but I’ve been thinking a lot lately about how much vacation and travel I can fit in this year. I recently bought a lake property and spend most Fridays working remotely with my family there, and it’s been a great (and endlessly fun) addition to our weekends. We’re slowly becoming lake people, and I’m okay with that!

Have you thought in the past that you’d love to someday buy a property at the lake? The ‘why don’t I just buy a lake house?’ thought train is hard to hop off when the vacation bill comes due and your wallet starts to sweat. You reason that you’re within spitting distance of the Ozarks, one of America’s most picturesque, serene places to relax. It’s easy to get there, decently affordable, and provides a good outlet for the family to spend time together away from the hustle and bustle.

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 in vacation homes?
  • Do you have to buy all new stuff (furniture, lake toys, etc.)?
  • How would it be financed?

Those are very good (and normal) questions you’re pondering.

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’re imposing, and you probably don’t have total peace of mind in using their toys (boat, jet ski, wake boards, paddle boards, kayak, etc.). It also 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 actually 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’s a good little feature as well: you can rent the property out, too. Conventional underwriting guidelines identify that the property needs to be used by the owner for half the year. What does this mean for your plans? It simply means that the property can be used by others for half of the year.

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. It’s up to you to determine the pace you want to rent it out at.

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 townhomes 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 around $900 to $1,100.

As a real-world example, we had a client who just purchased a three-bedroom, three-bathroom maintenance-provided townhome for $132,000. He financed $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 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 today.

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