Should You Buy That Vacation Home? 3 Things to Consider
Buying a vacation home feels glamorous and may even seem like a good long-term investment. However, purchasing a vacation home can be quite a process with many considerations to keep in mind. Here are just three of the many things you should consider before you make a purchase.
1. Consider All Your Costs
Understand the total cost of owning your vacation home. This includes not just the upfront cost but also property taxes, insurance, and miscellaneous expenditures even when the property is unoccupied. For instance, management fees for hiring someone to maintain your house (including yard and pool) or surprise expenses such as pipe bursts or weather-related damage can be some of the hidden costs of owning a vacation home.
2. Weigh the Pros and Cons
Even if you have made up your mind to purchase the vacation home, it is still a good idea to weigh the pros and cons. Some of these can be:
|It is a long-term investment which, like your home, has the potential to increase in value. ||It can be expensive not only because of the upfront payment but also due to property taxes, insurance, security, and maintenance costs, among other hidden costs that may arise. If it is located in another country, foreign exchange fluctuations can also add to your costs. |
|You can generate cash flow by renting out your vacation home if you are not going to live in it throughout the year. ||Many popular vacation spots have a “high” season, and this could cause a conflict between renting the property out when it is in demand and using it for your personal time. This means the additional stream of cash flow you may have been looking for won’t be quite as stable as you may have predicted. |
|You can enjoy a longer vacation without worrying how long you can afford to stay at a hotel. ||Will you enjoy going to the same place for vacations repeatedly? You may wish to have a change of scenery after a few years of novelty, but owning a vacation home doesn’t provide the flexibility to change destinations. It’s important to understand what you like when looking for a vacation property, including understanding your lifestyle and what season you’d like to vacation in. |
|Having a place to recharge and relax more often, or host family vacations, may increase your quality of life.||Having a vacation home, and its related costs, maintenance and security issues as well as the potential stress of renting it out, can negatively impact your quality of life. |
3. Crunch the Numbers
As you may have realized, you need to be thinking a lot about the numbers when deciding to purchase a vacation property.
At the end of the day, ensure that you are making the decision for the right reasons, considering whether you are really going to get meaningful usage out of the vacation property and whether owning the property will improve your quality of life.
If you are looking to purchase the vacation home as an investment, in the hope that renting it out can justify the cost of buying the property, it may not necessarily be the best investment and could be speculative with the annual carrying costs associated.
There are other sources of investment that can allow you to attain capital appreciation and cash flow, allowing you to sleep better at night.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.