In my profession, I get a lot of questions about how folks should save their money. But sometimes, I get asked about how they should spend it. One popular inquiry is whether it’s a good idea to buy a vacation home.
Straightforward enough, this question actually has a lot of moving parts. Like any other decision in life, there are pros and cons to the proposition of owning that home on the lake, cabin in the mountains, or condo at the beach.
We’re going to run down my list of top seven considerations before you sign the sales contract on your new home away from home, but let’s start with the bottom line: A vacation home is a luxury. Pure and simple, you shouldn’t buy one unless you can afford it. When I say afford here, I mean well and beyond paying a second mortgage.
Sure, there may be great price tags. You may spend a lot of time in a particular vacation spot throughout the year. You may love the thought of twice-monthly getaways. You may believe you can make money off of this property when you’re not using it. And, you may question why you should keep spending so much on rental fees when you could own.
These questions are all legitimate, but allow me to point out that they’re based on emotion and fueled by desire. The reality is that most people who buy a vacation home don’t use it as often as they plan and don’t make as much off of renting it as they hope.
But what about Airbnb and VRBO? I’m glad you asked. These two multi-billion-dollar companies have popped up in the past few years to capitalize on the abundance of unused vacation homes. And, obviously, they make a fair bit of profit doing it.
My advice is only to buy a vacation home if you know and accept that it is pure luxury, and only if you absolutely have the money to absorb the cost without feeling a pinch.
If you’re still unconvinced, consider these seven drawbacks of owning a vacation home before you put your hard-earned money and time into one of your own.
1. Passport? What Passport?
Before we get into the more financial pieces, let’s talk lifestyle. Travel is on the rolling to-do lists of so many happy retirees. But if you own a second home and are shelling out clams every month to cover the costs, you’re less likely to go other places. Maintaining a second home is as big a responsibility as owning your primary residence. So, if you’re invested in using your vacation home and keeping it in good repair, you’ll be less likely to travel elsewhere, like say on long cruises or trips abroad you’ve always wanted to take.
2. You’ve Gotta Show the Realtor the Money
Unless you’re abiding by my bottom line (in which case you’re simply writing a check at closing), you may get hit with a cold, hard truth about second home down payments. Of course, the amount depends on a variety of factors, like credit, location, etc., but the general rule is for a typical 15- to 30-year mortgage on a non-owner-occupied property, you’re looking at between 20% and 30% of the sale price for a down payment. Did anyone else hear that record skip?
3. Stuff Breaks
Ask any homeowner what the biggest headaches of property ownership are, and they’ll likely tell you about their latest unexpected repair. Second homes are no different; things break, and it costs time and money to fix them. If you’re a diehard DIY’er, the time piece can get you here. If your property is hours away, you’ll find yourself making the hump to get there to fix whatever is broken, not to mention the time it takes to make repairs. As for money, paying for a new HVAC unit or hurricane-proof windows isn’t small potatoes. With a vacation home, you may find yourself doing more work on your “vacation” that you planned.
4. IKEA or No, Stuff is Expensive
Look around your home. There’s a lot of stuff, right? Furniture, appliances, beds, window treatments, TVs, dishes, brooms, bath towels, rugs, wall decorations, hangers, linens – the list is almost endless. Your vacation home is going to need all of those things, and more. That’s a significant investment in both money and time. Of course, there are variables. A one-room rustic cabin in the woods will require less furnishing than larger beach house or luxury country home. If you plan to rent your hideaway, you’ll need to get all this stuff in place right away. If it’s a personal hideaway, you can spread the purchases and shopping over time.
5. Pools, Floods, Storms, Oh My!
We’ve all seen the video from the aftermath of a hurricane. Houses under water. Roofs ripped in half. Depending on the location of your getaway place, you may need extra insurance to cover storm or flood damage. If there’s a pool on your property, you will likely be advised to get an umbrella liability policy, too.
6. Sure, crank the AC down to 61!
Maintenance and utility costs can seriously cut into your profit from renting a vacation home.
Lawn care, snow removal, pest control – these are just some of the checks you will be writing on a regular basis. And don’t forget the cost of cleaning after every rental.
And, as noted above, roofs wear out, paint peels, trees fall, sidewalks crack. It’s like, you know, owning a second house.
Your gas, water, and electric bills will likely be higher than you might expect. Why? Simple economics: If your guests aren’t paying for water, gas and electricity, they have no incentive to be mindful of how much they use. (This explains the clause in one rental agreement I signed that limited use of the washer and dryer to three loads per week.)
7. “It’s Me Again”
By definition, a vacation home is located at some distance from your primary residence.
So, what happens when a renter has a problem or complaint? Are you going to drive up there and fix the fridge? Or get the cable TV working? Or replace the key they lost?
That’s not optimal, or even realistic.
Enter the property manager. Sooner or later you will decide to hire someone to handle these chores and otherwise oversee your considerable brick-and-mortar investment.
While totally worth it, the cost of a property manager puts another dent in your rental income.
Even if you don’t intend to rent your getaway, you may still need to retain someone to keep an eye on the place, especially if you visit very sporadically, or the house is located in a tropical storm zone. The last thing you want is to roll into the driveway only to discover that four of the windows blew out in that big storm last week.
It’s often said that the best definition of a recreational boat is, “a hole in the water into which the owner pours money.” Of course, that truth doesn’t stop millions of Americans from owning and enjoying speedboats and sailboats. The same is true of vacation homes. If you truly want one and understand exactly all the costs, monetary and otherwise, enjoy!
Oh, and your new place is located on one of Florida’s 30A beaches, let me know. I might be interested in renting it!
Check out: 7 Ways To Cut Vacation Costs