Vacation home buyers need to consider hidden costs: Property and State Taxes, Other Costs

Come mid-October, Dee Truluck-Williams, 49, and her husband Jason, will pack up their Wolfeboro, N.H. home and head south to Venice, Fla., just as they have since 2010, when they bought their snowbird home.

“When it starts to get cold in New Hampshire, we head down,” says Truluck-Williams. “Within a few days, we're texting our kids' pictures with ‘beer in hand, sitting on the beach,” she jokes.

The couple didn't set out to become snowbirds, but after visiting an aunt down in Venice a few years ago, they were enticed by the real estate deals and the warm weather.

They're not alone: Vacation-home sales (which are often in warm-weather destinations) rose 7% in 2011, according to the latest data from the National Association of Realtors and analysts at the firm expect this rise to continue.

The average age of a vacation-home buyer was 50; the typical buyer purchased a property that was a median distance of 305 miles from his primary residence; and roughly three in four vacation homes were bought in the South and West.

Among recent vacation home buyers, one in three bought because of the good deals on real estate, according to a 2012 study by vacation rental site HomeAway.com. “There's definitely been an increase in interest [in buying second homes] because people know there are great deals right now,” says Karyn Glubis, a real-estate broker in Tampa. “A bunch of my clients are snowbirds from New York and the Northeast.”

To be sure, there are risks as well as rewards to buying a snowbird home. Second-home markets tend to get hit particularly hard during recessions, says Steve Henley, national tax practice leader at accounting and tax firm CBIZ MHM.

And getting a loan to buy a second home isn't easy, which may explain why 42% of all vacation home buyers in 2011 paid all cash for their home, according to NAR.

It's also important to find the right locale. “Vacation there at least two or three times and rent there for a while before you buy,” says Boyd Lemon, author of “Retirement: A Memoir and Guide,” who spent years as a Boston-to-south Georgia snowbird before permanently moving south. “First impressions can be deceiving.”

When visiting, you should investigate things like what residents are like, activities and community safety: More than eight in 10 snow birds say personal safety is key to their satisfaction in their warm-weather communities, 78% say the social opportunities are, and 63% cite the outdoor activities, according to a study published in January in the journal Tourism Management Perspectives.

It's also important to investigate health-care options in the area, says Michael Nuschke, a retirement adviser who splits his time between Ajijic, Mexico and Nova Scotia. Search online for rankings of nearby hospitals and talk to people who live there about what the options are, he recommends.

Then, there are the financial considerations. In addition to finding a good deal on a home, here are some money matters that aspiring snowbirds should consider.

Taxes

The income tax issue can get complicated, especially if you hope to save on taxes by treating the snowbird state, rather than your home state, as your state of residency, says Henley.

There's the simple part of the equation‘what the new state's income-tax rate is (seven states, including Florida and Texas, levy no income tax) and whether and how the state taxes things like Social Security‘which you can learn about at TaxFoundation.org.

Then there's the harder part: Are you truly a resident of the new state so you qualify to pay income tax there, rather than your prior home state? “You need to seek professional advice when figuring this out because each state varies and it's really complicated,” says Clarence Kehoe, executive partner of accounting firm Anchin, Block & Anchin.