Is A Vacation Home Really An Investment?

It happens all the time. While on vacation at the beach or in the mountains, we start to daydream about having our own little place to escape to when we need a retreat. If you desire to make that dream a reality, it’s critical to first consider if it’s truly a good investment for you and your family.

As there’s no cookie-cutter answer here, we’ve compiled a list of questions to ask yourself, along with pros and cons to consider, before making the decision to buy a second home.

QUESTIONS TO ASK YOURSELF BEFORE BUYING A VACATION HOME

As with most things in life, there is no one-size-fits-all answer for whether you should buy a vacation home. That said, here are three questions that should guide your decision-making process:

QUESTION 1: DOES OWNING A VACATION HOME MAKE SENSE WITH YOUR LIFESTYLE?

If you typically work 60+ hours a week with little time off, a vacation home may not be for you. If you typically like to visit a new city or country each time you travel, a vacation home may not be for you. If your ideal vacation consists of all-inclusive resorts and unlimited pampering, a vacation home may not be for you. 

Think about how you like to travel—and how often you can do it—then decide if a vacation home makes sense. 

QUESTION 2: CAN YOU AFFORD A VACATION HOME AND THE ONGOING EXPENSES THAT COME WITH IT?

Even if you can pay cash for a vacation home, there are plenty of other expenses to watch out for: property taxes, HOA fees, insurance, utilities, maintenance, etc. Some of these costs can be hard to estimate beforehand. 

QUESTION 3: WHAT WILL YOU DO WITH IT WHEN YOU’RE NOT USING IT?

Some people plan to rent their vacation homes out when it’s not in use. Others prefer to keep it all to themselves. There’s no wrong answer, but know that what you plan on doing with your vacation home can impact the deductions and credits you qualify for come tax time.

PROS OF OWNING A VACATION HOME

Now that you’ve clarified your situation a bit, here are five reasons why you may want to invest in a vacation home: 

1. You could potentially generate rental income. The biggest advantage of owning a vacation home is that you can rent it out with a local company or on Airbnb or VRBO for extra cash. 
2. It could appreciate in value. If you buy the right home in the right location, it’ll appreciate in value, increasing your personal net worth in return. 
3. There could be tax benefits. If you keep your vacation home for yourself, you may be able to deduct mortgage interest and property taxes when you file your return. If you rent it out, you may also be able to deduct maintenance, repair costs, marketing, and management fees. (1)
4. You’ll have a fun place to gather with friends and family. Most people buy a vacation home because they want to make sweet memories with family and friends. 
5. It makes “getting away” convenient. A vacation home is just that: your home. You can leave clothes and essentials there, reducing the time and energy you need to spend packing up each time you want an escape. 

CONS OF OWNING A VACATION HOME

The benefits of owning a vacation home are enticing, but there are also reasons why you may not want to do it: 

1. It can get expensive quickly. It’s difficult to accurately project how much you’ll spend on your new home. Utilities, insurance, taxes, renovations, repair costs—these can all add more to your bottom line than anticipated.
2. It could be a risky investment. There are risks associated with any investment, but vacation homes may be more susceptible to economic downturns and natural disasters. 
3. You may get tired of visiting the same place. Once you buy a vacation home, you may feel pressured to visit it any chance you get to help justify the cost. You may feel locked in and pass on an opportunity to visit someplace new.

IS OWNING A VACATION HOME A GOOD INVESTMENT? 

Whether or not owning a vacation home is a good investment depends on your unique financial situation. If you have a sizeable down payment and can easily afford the additional expense, it may make sense for you. But if you’d need to tap into retirement savings or rent it out for part of the year to cover the cost, it might not. Like most financial decisions, only you can determine if owning a vacation home is a good investment and will align with your other financial goals. 

CONSULT WITH A PROFESSIONAL

Buying a second house is a significant commitment. For some individuals, the benefit of having a vacation home may be worth the investment; but for others, the added cost and stress of maintaining a second property could be biting off more than they can chew.

Our HBA Wealth team is here to help you evaluate your finances to see if a vacation home is a wise investment. And beyond this decision, we’d love to partner with you on your financial journey, putting a plan in place that empowers you to work toward all your financial goals. To get started, contact us at (626) 529-8347 or email Ricky directly at [email protected].

ABOUT HAYDEL, BIEL & ASSOCIATES

Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at [email protected].

____________

(1) https://www.investopedia.com/articles/personal-finance/013014/tax-breaks-secondhome-owners.asp