Owning a vacation home is the dream, right? A place to get away at the drop of a hat. A place with warmer weather and sunnier shores. A relaxing respite from the daily grind.
Who wouldn’t want one?
As idyllic as vacation homes sound, the truth is they’re not all sunshine and rainbows. Like any type of real estate, they require upkeep, maintenance, care and, well, a serious financial commitment.
So before you pull the trigger and buy that Cali beach house or Lake Tahoe cabin, take a few minutes to really consider what vacation home ownership would entail. Depending on your long-term goals, an investment property may be a better use of your funds—or maybe just a lavish, whirlwind vacation.
How much will you use your vacation home? Will you go there every summer or fall? Will you have the availability, vacation hours and time to do so? More importantly, will you have the funds necessary to travel there?
Think long-term, and really consider how much you and your loved ones will be able to use the property. If you’ll have ample time to spend at the home, then make sure to choose a locale where you can get the absolute most use from it—somewhere with a temperate, year-round environment you can enjoy for all seasons.
If you’re 35 or older, your retirement goals need to play a big role in this decision. If you intend for the property to be your end-game—your home once the kids have moved out and you’ve both retired, then that’s perfect. But make sure the purchase won’t deplete your funds and leave you unable to pay your bills once you’re in the home.
You’ll also want to consider your savings. Are you dipping into retirement funds or 401Ks to pay for the home? If so, do you have a plan to build those coffers back up? This is where an investment property could come in handy. Instead of purchasing a vacation home, you could buy a rental home, which could generate income for your future retirement (and beyond). You could also consider renting out that vacation home when it’s not in use—but more on that later.
Just like your primary home, your vacation property will also require regular maintenance. The lawn will need to be mowed, you’ll need to have the gutters cleaned and the gardens mulched, and you’ll have to service the HVAC, plumbing and electrical systems throughout the year. How much will these tasks costs you monthly? Annually? Can you afford them? Keep in mind you’ll also be covering these same costs on your main home—so that means double the financial commitment.
With the growth of sites like Airbnb and HomeAway, turning your vacation home into a revenue stream is actually quite easy—as long as you’re willing to let someone unfamiliar stay on your property while you’re away. So if the costs of maintaining and caring for your vacation house have you worried, renting it out is a great option to help cover those expenses. Keep in mind though, offering your home up as a rental will come with some costs, too. You’ll need to pay for a regular cleaning service after each guest leaves, and you’ll need to stock the property with toilet paper, towels, soaps and other basic supplies to keep them happy. You may also want to invest in extra insurance in case of damage.
Still, with the right property in the right location, a vacation home can be a solid way to make year-round income.
Ready to buy your dream vacation home? Want a revenue-generating investment property instead? Our mortgage advisers are here to help.