Maybe your perfect vacation home sits on a beach overlooking the ocean. Perhaps it’s perched on snowy slopes, or a cabin tucked in the woods. Location is just one of the many questions you should answer when you’re considering purchasing a vacation home.
Some purchase a vacation home for their own personal use, others purchase one to rent out as a way to make a profit, and some choose both. The logistics and financing are different for each option — all of which should be considered when deciding if this is right for you.
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Owning a Vacation Home
Owning a vacation home sounds like an ideal and romantic situation. It’s having a second home to relax or spend time with family. However, it also involves the less romantic parts as well: a second mortgage, property taxes, maintenance, etc. Owning a vacation home offers some fantastic perks if you’re willing to pay for them.
Should I Buy a Vacation Home?
There are multiple ways to own a vacation home. One of which is to buy a secondary home to stay in on vacation, or even for a substantial portion of the year. Some people choose to rent out the home when it’s not in use, some don’t. Before deciding on this option, there are some things to consider:
- Can you afford it?
It’s not just the price of the home you should consider, but also how you’re paying for it. It’s not wise to dip into a retirement account or an emergency fund for a vacation home. Not only that, but there is also the cost of maintenance and property taxes and deciding if you need to rent it out to help mitigate cost.
- How often can you use it?
Whether you’re buying a vacation home just for you or to rent part time, it’s important to consider how much time you’ll really be able to be there. If there are substantial portions of time where you won’t be there, you may consider renting it part time to help pay for the cost and keep everything in working use. If you can’t use it often, should you even buy a vacation home, or should you buy a vacation rental instead? How would those look different to you?
- How will it work?
Who will maintain it when you’re not there? Will you allow family to use it as well? What will happen with your primary residence when you’re at your vacation home? There are a few logistics to work out depending on how long you plan to stay in your vacation home and how long either of your homes will be vacant.
- Are there other options?
Sometimes a vacation rental sounds appealing, but other options may make more sense for you. Maybe a timeshare makes more sense, or simply renting a home long-term while you’re on vacation. Maybe a more passive real estate investment opportunity with a higher profit margin like a REIT or even a real estate equity fund makes more sense if you’re primarily interested in the financial benefits of real estate investing instead of counting on the appreciation of a vacation home.
Owning a Vacation Rental
Owning a vacation rental can be done in a few ways. Either you rent it out full-time, or you rent it out when you’re not using it. Either way, it’s important to decide if owning a vacation rental is right for you.
- Do you want a vacation home for the profit?
If you’re in this for the profit, you need to consider if the profit will sufficiently outweigh the cost of the home. How much can you really rent it for in that area? Is the insurance higher due to ocean proximity? Do you need to hire a property manager? Are there tourist seasons that will affect your profit for a portion of the year? These questions will need to be answered if you intend to purchase a vacation rental as an investment property.
- Are rental risks worth the affordability?
Renting out your property will always come with risk. You need to decide if that risk is worth the rental income you’ll make to help the property be more affordable. Have a plan on how to handle damage to the property or emergencies renters may have. Your vacation rental might not be close enough for you to handle these emergencies on your own.
- Are there other options?
There are so many ways to invest in real estate, is a vacation rental right for you? A vacation rental is great if you’re looking for a real estate investment to make money and you’d like the perk of using it as well. Otherwise, flipping homes or getting a traditional rental property may offer more income if you’re looking to make a higher profit from your rental.
Best Place To Buy a Vacation Home
If you’ve decided on buying a rental home, whether to use personally, to rent, or both, you’ll need to decide on the perfect location. How you’ll be using it will have a lot to do with where your vacation home should be.
Where To Buy Vacation Homes for Personal Use
- If you plan to use it, you’ll want to pick a location you’ll want to visit regularly. Think about travel costs, ease of access, and the vacation aspects that matter to you.
- Also consider climate, geography, and activities.
Where To Buy a Vacation Home to Rent Out
If you plan on renting it out in any capacity, you’ll also want to think about your guests and your profit. This means picking a location with
- A healthy tourism industry.
- A place with lower property taxes and
- A reasonable cost for property or hazard insurance if you’d experience flooding, hurricanes, fires, etc.
Though you may not check all of these boxes, make sure you’re checking the ones that matter the most to you and your finances.
How To Buy a Vacation Home
Buying a vacation home is a big decision that involves an understanding of how you’ll use it, the total cost of owning it, being sure it’s not compromising any other financial goals, and being sure it’s worth it.
Know How You Will Use It
Make a plan for how your vacation home will be used. This will give you a more accurate picture of how much rental income you can make, and when you want to use it personally. You may use an online platform for renting it out, you may hire a property manager to take care of that part, or you may only rent it out to family and friends. Some people choose not to rent out their vacation home, but you’ll still want someone around to take care of it in case of an emergency. No matter how you use it, make a plan.
Calculate the Total Cost of Ownership
Consider the total cost of a second home ownership. This includes a second mortgage, property taxes, maintenance, utilities, insurance, furnishing, HOA fees, advertising, hiring a property manager, home security, and cleaning services. You’ll basically be paying for two homes, plus the costs associated with renting a property. You won’t have an accurate idea of profit before you’re sure you’re calculating the total cost of ownership, not to mention all the additional costs that go into purchasing a home in general.
Consider Your Other Financial Goals
Not only should you consider whether or not you can afford a second home, you should also consider if a second home will hinder any of your other financial goals. Not only should you prioritize debt reduction, retirement, and an emergency fund over many big purchases, you should also consider your other financial dreams. With any extra money tied up in a second real estate property, will you be okay putting off other vacations, purchases, and a larger financial cushion?
Is Owning a Vacation Home Worth It for You?
Whether you’re attracted to the idea of a vacation home or the investment opportunity of a vacation rental know that there are ways to fulfill your attractions without purchasing a vacation home. You may be better off with a timeshare or making a property investment. If you aren’t cut out for the negatives that come with the positives, you may want to rethink the process. However, there are plenty of people who are cut out for the negatives. Just be sure you’re one of those people.
When you buy a vacation home, you have a second home in an ideal destination there for you whenever you need it. Your second home can be your own personal hideaway, an investment property intended to make a profit, or a little bit of both. Decide for yourself how your vacation property will work for you. It’s perfect for those with the financial means, the dedication needed to manage an extra property, and the love of having a vacation getaway.
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