Where do you like to vacation? Do you like to ski in Colorado during the winter, or soak up the sun in the Florida Keys during the summer? Wherever you choose to kick back and relax, don’t you wonder how much you would enjoy life if you could come back whenever you want? This is the trap that lures homeowners into purchasing a vacation home, even though they probably should not.
If you have purchased a vacation home recently, you are not alone. In the last year, vacation-home-sales have increased to 1.13 million, up 57.4% since 2013. We all want to enjoy a break from work and visit somewhere that already has everything we want, without excessive planning or packing.
There are a variety of advantages to owning a vacation home. Obviously you are familiar and comfortable with the area surrounding the property, which makes it feel like a second home instead of just a vacation home. It can also be used as a head start toward a retirement home, no matter what age you are at. Not to mention that it will always be available for you. Unless, that is, if you decide to rent it out when you know you are not going to be there.
Eventually, though, the disadvantages are going to outweigh the advantages. You may think that once you pay the mortgage, you are done. This could not be farther from the truth. It is estimated that the cost of maintaining a second home averages at about $700 per month. This includes property taxes, insurance, utilities, lawn care and HOA per month.
Think about it: you are going on a weekend getaway with your spouse. If you have a second home, you do not have to worry about packing as much and you will know the area, but it will be the same experience you have had before and you will be spending at least $700 on the trip. It could possibly be more if you add in gas or a plane ticket. If you stay in a hotel, on the other hand, you can experience somewhere you have never been before and spend less money. The average hotel room in The United States costs $137 per night. If you go for a weekend, you will spend at most $500 on a room.
There are also great deals you can take advantage of on Groupon and Airbnb. Airbnb allows you to find hosts all over the world with extra rooms, entire homes and unique accommodations like castles and igloos to stay in. With this, you not only a get cheaper option, but an experience you have only ever dreamed of. I mean, who has not dreamed of staying in an igloo at some point?
When I was growing up, I always had friends telling me stories about their home-away-from-home. So a few years ago, when I was sure our finances could allow it, my wife and I purchased a second home in East Texas. For a while it was great; we were going away once or twice a month, relaxing and enjoying ourselves. I learned to shoot guns and fish in the river. But as years went by, we kept getting busier and could not make it out as often. Going to the house eventually started to feel more like an obligation instead of a privilege. We felt we had to get our money’s worth, but no matter what we did, it just didn’t seem to work out.
We ended up selling the house and we have no regrets about it. We have been able to visit other places and do other things that fit our interests just as much, if not more, than visiting East Texas.
If you are thinking about investing in a vacation home, consider these three tips:
- Make sure you can afford it. Calculate what it will cost you upfront and in the future, especially if you are investing in it as a retirement home.
- Know how often you will actually be there. Like my wife and I, many people do not get the opportunity to visit their home as much as they would like. So think about this realistically, not hopefully.
- Decide early on if you want to rent it out so you can create a rental business plan and calculate rental income into your finances.
Less is always more and this situation is no different. The more you have, the more you have to maintain. Do not allow yourself to fall into the trap of a vacation home. Use the money and explore your freedom all around the world.
Damon Gonzalez is the founder of Domestique Capital, located in Plano, Texas. He has been a CERTIFIED FINANCIAL PLANNER™ practitioner since 2004 and has extensive knowledge in investments, taxes, budgeting, and insurance. He obtained the Retirement Income Certified Professional Designation in 2015. Learn more at domestiquecap.com.