The idea of owning your own vacation home seems appealing at first glance if you don’t want to attempt the more lucrative but hard land flipping business. This is especially true if you have a favorite place to travel to. It is important to fully understand the costs involved in buying a vacation home before you decide if it is worth it.
The number of vacation homes sold rose by 16% in 2020 and 33% in the first half of 2021. This coincided closely with two major trends in the housing industry: buyers looking for remote work opportunities and buyers looking to capitalize upon a growing global demand private vacation rentals.
It doesn’t matter if you intend to use your vacation home as a personal or rental property, knowing what you are getting into is half of the battle in making sure it pays off. These are some things you should consider when deciding whether a vacation house is worth the investment.
Location is important, as with any housing investment. Location is the most important factor in terms of future demand and resale values if you are buying a vacation home. You should consider the hotness of the tourist market in your area and whether there is enough interest to cover your costs.
Both short- and long-term financial goals. It might not be the best choice if you are looking to take big steps back from your financial goals by purchasing a vacation home. When deciding if it’s worth the investment, you need to consider maintenance costs, up-front costs, taxes, and management costs.
Comparison of prices. The price of a vacation home has seen the same price problems as the residential market. There have been huge increases in prices that aren’t supported by market history. If you are looking to buy the vacation home of dreams, but are not willing to pay the list price, it may be a better idea to wait until the market cools.
Financing logistics. You will usually need to pay a higher down payment and take on a higher interest rate when financing a second home. Because these types of investments are risky, banks won’t typically give mortgages as freely as they would for a primary residence. You should have enough cash to pay for this type loan or, even better still, you can waive a mortgage entirely.
Your own travel plans. If your vacation home is only for personal enjoyment and not an wealth building investment, you should be realistic about how often it will be used. It may make sense to have your own home depending on how far it is from your primary residence, the climate and the cost of travel in the area.
Like any other real estate purchase, deciding whether a vacation home is worth the investment comes down to a benefit/risk analysis. If you have the time and money to purchase and maintain a vacation house, this investment could be a great one for personal growth and financial satisfaction.
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