Thinking about buying a vacation property to improve your lifestyle? I’ve owned one since 2007 and in hindsight, renting would have been a better option. Owning a vacation home may sound great, and there’s always the chance it could increase in value, but it’s not always the wisest financial move.
In reality, investing in your primary residence and exploring other real estate investment options might bring you better returns. Owning a vacation property tied up my finances, especially when I bought a condo in Lake Tahoe right before the financial meltdown between 2008 and 2010. The property’s value hasn’t fully recovered even today.
The idea of owning properties in favorite destinations sounds ideal, avoiding homesickness while on vacation. After moving from New York to San Francisco, the dream was spending part of the year in San Francisco, part in Honolulu, and traveling the rest. But the financial reality hit hard.
Owning a vacation property can also be problematic for your finances. A National Association of Realtors survey in 2023 showed that while vacation homes made up 13% of sales, they brought a lot of unforeseen issues. For example, during a short stay at my Squaw Valley property, I found unexpected damages that neither the tenants nor the property management company owned up to, adding stress and expenses.
The income from renting out your vacation property is uncertain and highly dependent on factors like weather, which affects rental demand. Despite a good season in 2022/2023, there were years when income was stagnant.
If you’re considering buying a vacation home, ask yourself several important questions:
1. Do you like variety in your vacation stays? Owning means you’re stuck with one location.
2. How much vacation time can you realistically take? If your job doesn’t allow long breaks, it might not be worth the investment.
3. Could the money spent on a vacation home provide better returns elsewhere?
4. Consider the impact of potential rental income versus the need for it to afford the property.
5. Think about the long-term commitment. The average vacation home ownership lasts only about 7-8 years, which might not be enough to weather market fluctuations or justify the costs.
Owning a vacation home might seem like a smart investment, but it often doesn’t make financial sense unless it’s used very frequently or can generate significant rental income. For most people, the cost and hassle aren’t worth the limited use. You might end up wishing you had that extra money in the bank instead. If you’re looking for real estate investments, consider more flexible and liquid options like real estate crowdfunding, allowing you to invest without the headaches of property management.
