A quick Google search for a pros and cons list about whether you should buy a vacation home, will give you lots to think about. In this tip we talk about what you should consider before you buy that second home.
Links:
Transcript:
Welcome to Money Tip Tuesday from the Making Money Personal podcast.
Even the name, “vacation home” evokes happiness. Who wouldn’t want a vacation home, simply to associate time there with a “vacation”?
As more and more Gen X thru Z build their wealth and disposable income, vacation home sales are on the rise; according to the National Association of Realtors, second home purchases are up 51% from January – April 2021.
Let’s look at some common pros and cons of owning a 2nd home for the purpose of rest and relaxation:
Real estate is always a good investment. Depending upon when you buy, and how much you pay, real estate is usually a great investment because of the increase in demand and limited land on this planet. I have always heard you make money when you BUY real estate, not when you SELL so work with a real estate agent to make sure you’re not overpaying for that 2nd home. Your agent will run sale comparisons (or comps) of the area to support your offer.
You’ll always have a place to go. When you own the property, you can pretty much depend on its availability. The downside is this is a big world with lots to see; do you want to keep going to the same place? Or if you’re like me, you have to justify the cost per use ratio so you have to go every weekend to get your money’s worth regardless of all the other activities that you’re committed to—it can be exhausting!
You can rent it out and make money. The rise in Airbnb and VRBO have opened the world to rental properties. Once you are on their platforms, which I understand are fairly easy to use, you can make very good money renting out your space. If you want to use your home certain times of the year, you simply block availability.
The downside is: you're sharing your vacation home with strangers; you’re not staying with them, but they’re touching your stuff and using your toilets. There’s a lot to manage. You must set up cleaners and schedules and deal with people because they absolutely need another night and thought they booked it correctly only to find they didn’t, but you must take care of it.
I have some friends who recently looked into a vacation home. The good news is their current mortgage is paid in full and they had a sizable down payment for their vacation home. They did the right thing: they put the cost of ownership into their budget to see if their income would cover the costs. If you can’t pay in cash, you’ll need a mortgage, property insurance, maintenance funds, possibly Homeowner Association (HOA) fees which are highly likely for resort properties, and cleaning fees, if you’re renting it out and, wait for it…property taxes.
When I looked at the listing of the property my friends were considering, I knew they could handle the cots, but the monthly $1200 property tax bill shocked me. If you do need to take out a mortgage for a vacation home, please consult with a good Mortgage Originator, like those at Triangle Credit Union. You may find you need a higher down payment, but they will be able to work with you on your financial plan.
Speaking of financial plan, when you’re about to make a big decision like this, it’s always good to consult your financial planner—this is the person who knows your financial story and can objectively assess your situation. If you have any comments or ideas for additional tips, please email us at tcupodcast@TriangleCU.org. Be sure to follow the Making Money Personal podcast page on Facebook for more great content.
Thank you to our sponsor, Triangle Credit Union, and to you for tuning in!
Have a great day everyone!
Tips to Avoid Doom Spending and Safeguard Your Wallet - Money Tip Tuesday
Drive Confidently with MRC and GAP Vehicle Coverage - Money Tip Tuesday
Episode 68: Money Matters: Embracing Financial Education for Any Age
Navigating Car Purchases: The Role of Down Payments - Money Tip Tuesday
5 Financial Resources for Teens - Money Tip Tuesday
Library Cards: Your Free Pass to Entertainment and Education - Money Tip Tuesday
Embrace the Season: Strategies for Financial Renewal - Money Tip Tuesday
Strategies to Beat Surge Pricing and Save Money - Money Tip Tuesday
Episode 67: Strategies to Improve Financial Communication as a Couple
Check Your Financial Health with an Assessment - Money Tip Tuesday
Simple Ways to Save on Healthcare Costs - Money Tip Tuesday
How to Know it’s Time to Buy a New Car – Money Tip Tuesday
Tips to Keeping Connected Devices Secure - Money Tip Tuesday
Try This Five Point Debt Payoff Plan - Money Tip Tuesday
Episode 66: Support a Local Nonprofit with Share 'Cuz You Care
Financial Topics Couples Should Discuss - Money Tip Tuesday
Follow This Simple Money Rule to Start Building Wealth - Money Tip Tuesday
Maximize February Car Deals with a Pre-Approval - Money Tip Tuesday
Banking in a Box: Advantages of an ITM - Money Tip Tuesday
Episode 65: Take Charge of Your Credit Score in 2024
Create your
podcast in
minutes
It is Free
The Meaningful Life with Andrew G. Marshall
The No-Frills Teacher Podcast
Heal, Survive & Thrive!
The Jordan B. Peterson Podcast
The Mel Robbins Podcast