There are a number of factors that should be considered before buying a vacation home to determine if it’s the right decision for you.
When owning a vacation home makes sense
There can be strong reasons for owning a vacation home.
When you like one particular place. If you develop a strong attachment to a place you want to go to again and again, owning a vacation home in that location makes a lot of sense. Let’s say for example that you love to ski and you have one specific ski resort that you particularly like to go to. In that case, buying and owning a vacation property in or near that resort can work very well for you. Not only will the house be a familiar place to take vacations, but it’s also an excellent place to store your ski equipment in between.
It doesn’t have to be a ski chalet in the mountains either. It could be house at a favorite beach or even one located close to a major attraction, such as Disney World.
When there’s strong potential for rental income. Though it isn’t universally true for vacation properties, there are some in such premium locations that there is strong potential for rental income. You may not be able to earn enough rental income to cover all of the expenses of the property, but you may be able to earn enough to offset at least the majority of them.
In that way, your seasonal tenants at least partially subsidize the cost of you owning your vacation home. If you are earning a sizable amount of rental income and the property is also increasing in value, that will be a double win.
When you plan to retire to an area. This can be one of the most compelling reasons to own a vacation property. You will own with the idea that you will eventually retire to the home. If you own the house long enough, you may also be able to payoff the mortgage on it prior retirement. If you can, you will not only have a very desirable place to live, but you will also be mortgage-free just in time for retirement. Another double win.
When you should probably rent a vacation home as needed
But there might be even more reasons why you wouldn’t want to own a vacation home.
When you don’t have that one place you always want to go to. One of the most compelling reasons for buying a vacation home is because it is located in an area that you like to return to again and again. But if you don’t have such a place, there’s no point in owning. If you do, that’s simply a matter of adding another possession – and the attached set of expenses – to your collection.
When you don’t want to manage remote property. One of the qualities that makes a vacation home a vacation home, is that is located in an area that’s very different from where you normally live, and probably a substantial distance too. If you don’t like the idea of owning and managing a property so far from home – with all the expenses that travel will bring – you probably shouldn’t own a vacation home.
When variety beckons. If you’re the type of person who likes to take different vacations in a variety of locations, you probably don’t want to be tied down to a single vacation home. One of the great things about vacation homes is that if you don’t own one yourself, you can always rent somebody else’s. And if you’re the kind of person who prefers to vacation in hotels, a vacation home will serve no purpose anyway.
Rental income potential is weak. As much as you may like a certain vacation home or location, if the a local rental market is weak, you won’t be able get any help from potential tenants in paying for the cost of the property.
As a rule, vacation properties make poor investments anyway, at least from an income standpoint. Even in strong vacation rental markets, the fundamental problem is that everyone wants to be there “in season” – which is also when you want to be there. And when it’s out of season – and you don’t want to be there – no one else does either. Translation: there’s a lot of competition for the property in season.
If this isn’t something you feel like dealing with, but you’d need the rent income to help maintain the property, you probably don’t want to own one.
A vacation home is one of the biggest purchases you’ll ever make. Though it can provide incredible benefits, think long and hard about the many mechanics that go into it, and whether or not you feel ready and willing to take on all that’s involved.
Do you own a vacation home? What are the pros and cons of owning one? What would you recommend to someone who’s thinking about buying one?
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