Published by Daniel Morrison, Founding Partner and Wealth Advisor
It happens to the best of us. We go on a vacation to the beach or the mountains and dream about what it would be like to have our own little place to retreat to whenever we want. But before you start searching Zillow and calling real estate agents, take a step back and consider if it’s truly a good investment for you and your family.
To help you see all angles of this decision, we’ve created a list of questions to ask yourself, along with pros and cons to think about, before buying a second home.
Questions To Ask Yourself Before Buying A Vacation Home
As with most things in life, there is no one-size-fits-all answer for whether you should buy a vacation home. That said, here are three questions that should guide your decision-making process:
Question 1: Does Owning A Vacation Home Make Sense With Your Lifestyle?
If you typically work 60+ hours a week with little time off, a vacation home may not be for you. If you typically like to visit a new city or country each time you travel, a vacation home may not be for you. If your ideal vacation consists of all-inclusive resorts and unlimited pampering, a vacation home may not be for you.
Think about how you like to travel—and how often you can do it—then decide if a vacation home makes sense.
Question 2: Can You Afford A Vacation Home And The Ongoing Expenses That Come With It?
Even if you can pay cash for a vacation home, there are plenty of other expenses to watch out for: property taxes, HOA fees, insurance, utilities, maintenance, etc. Some of these costs can be hard to estimate beforehand.
Question 3: What Will You Do With It When You’re Not Using It?
Some people plan to rent their vacation homes out when it’s not in use. Others prefer to keep it all to themselves. There’s no wrong answer, but know that what you plan on doing with your vacation home can impact the deductions and credits you qualify for come tax time.
Pros Of Owning A Vacation Home
Now that you’ve clarified your situation a bit, here are five reasons why you may want to invest in a vacation home:
- You could potentially generate rental income. The biggest advantage of owning a vacation home is that you can rent it out with a local company or on Airbnb or VRBO for extra cash.
- It could appreciate in value. If you buy the right home in the right location, it’ll appreciate in value, increasing your personal net worth in return.
- There could be tax benefits. If you keep your vacation home for yourself, you may be able to deduct mortgage interest and property taxes when you file your return. If you rent it out, you may also be able to deduct maintenance, repair costs, marketing, and management fees.[1]
- You’ll have a fun place to gather with friends and family. Most people buy a vacation home because they want to make sweet memories with family and friends.
- It makes “getting away” convenient. A vacation home is just that: your home. You can leave clothes and essentials there, reducing the time and energy you need to spend packing up each time you want an escape.
Cons Of Owning A Vacation Home
The benefits of owning a vacation home are enticing, but there are also reasons why you may not want to do it:
- It can get expensive quickly. It’s difficult to accurately project how much you’ll spend on your new home. Utilities, insurance, taxes, renovations, repair costs—these can all add more to your bottom line than anticipated.
- It could be a risky investment. There are risks associated with any investment, but vacation homes may be more susceptible to economic downturns and natural disasters.
- You may get tired of visiting the same place. Once you buy a vacation home, you may feel pressured to visit it any chance you get to help justify the cost. You may feel locked in and pass on an opportunity to visit someplace new.
Is Owning A Vacation Home A Good Investment?
Whether or not owning a vacation home is a good investment depends on your unique financial situation. If you have a sizeable down payment and can easily afford the additional expense, it may make sense for you. But if you’d need to tap into retirement savings or rent it out for part of the year to cover the cost, it might not. Like most financial decisions, only you can determine if owning a vacation home is a good investment and will align with your other financial goals.
Talk To A Professional
Buying a vacation home is a significant commitment. For some individuals, the payoff may be worth it. For others, the added cost and stress of maintaining a second property could be too much to handle.
At Jacob William Advisory, we’d love to help you evaluate your finances to see if a vacation home makes sense. While we’re at it, we can also put a plan in place that empowers you to work toward all your financial goals—whether that’s buying a cozy cabin in the woods or retiring early. To get started, contact our office by calling 410-821-6724 or emailing [email protected] or schedule an appointment at https://www.jacobwilliam.com/insights/#contact.
About Dan
Daniel Morrison is a Founding Partner and Wealth Advisor of Jacob William Advisory, a wealth management firm whose sole mission is to service their clients’ needs beyond their expectations. Dan Morrison has 27 years of industry experience, and for the past decade, he has been committed to building Jacob William Advisory into one of the foremost wealth advisory firms. Dan graduated from Towson University with a bachelor’s degree of finance in economics and obtained his master’s degree in finance from the University of Baltimore. He is a CERTIFIED FINANCIAL PLANNER™ professional and holds the designations of Chartered Financial Consultant® (ChFC), Chartered Life Underwriter (CLU), and Chartered Advisor for Senior Living (CASL). He and his wife Beth reside outside of Baltimore, Maryland, and have three wonderful children. Dan is involved in his church and he enjoys spending time with his family, playing golf, and sailing. A good book is also never far from his reach. Learn more about Dan by connecting with him on LinkedIn.
[1] https://www.investopedia.com/articles/personal-finance/013014/tax-breaks-secondhome-owners.asp
