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What to Consider When Buying a Vacation Home

Do you dream of escaping it all to your very own luxury cabin in the mountains? Or maybe your ideal escape is a beach-side bungalow overlooking the ocean.

Regardless of what your idea of a dream vacation retreat is, buying a vacation home is often called “lifestyle investing” because a vacation home is not just an ordinary piece of real estate – it’s a lifestyle choice. While owning a vacation home has its benefits, there are some potential drawbacks. You should carefully consider whether this type of lifestyle investment fits your long-term financial plans before making this big-ticket purchase.

Here are some thought-starters to help you consider whether or not buying a vacation home is right for you.

Questions to Ask

Owning a vacation home is a big purchase – you will want to figure out whether it’s going to be a wise long-term decision for you. Here are some questions you can ask yourself to help determine whether your financial picture supports this purchase:

  • How strong is your income?
  • Does your vacation home have rental income potential?
  • Are you maxed out of your mortgage indebtedness?
  • Do you need to finance the vacation property?
  • Do you plan to own your vacation home for at least five years?
  • What is your current net worth allocation?

Use Personal Capital’s free financial tools to understand your net worth and track your finances.

Evaluate Your Long-Term Goals

If you’re looking to capitalize on your vacation home investment, you are likely wanting to make a return by renting, selling or retiring at the property. You should know ahead of time whether you are buying a vacation property for a better lifestyle, to make money, or a little bit of both. Some key things to evaluate are how often you will use the property yourself, what your travel patterns are currently and will be in the future, whether you need rental income from the property, and how the property may appreciate over time.

If you’re considering a vacation home purchase, you should keep in mind that many factors can drive the local market up or down, including: major employers come and go, weather events can leave lasting environmental changes, and zoning laws are always subject to change.

Understand the Current Market

While most of us have lived through the peak and subsequent burst of the 2008 real estate bubble, many of us still seem conditioned to believe that real estate is a guaranteed “win” after nearly another decade of rapid growth. But it’s easy to make emotional – and irrational – decisions when it comes to real estate. If you’re considering a vacation home purchase, you should keep in mind that many factors can drive the local market up or down, including: major employers come and go, weather events can leave lasting environmental changes, and zoning laws are always subject to change. We recommend working with an agent knowledgeable in the area you’re exploring so you can get a good idea of market activity and pricing trends.

Consider What Type of Vacation Home You Want

There are several types of vacation properties to consider, each with its own set of unique advantages and challenges. Some of these include:

  • Waterfront houses – great views and access to the beach, but there can be red tape regarding any property changes, and insurance requirements can be expensive
  • Mountain cabins/ski condos – potential access to larger acreage at a lower cost than other types of homes, but weather elements can greatly impact your property
  • Urban condos – easy access to city amenities, but costs associated with HOAs and other property management fees can be pricey

And don’t forget the adage, location, location, location. You want to make sure the location is not only accessible to you, but provides the types of activities you want available to you and your family.

Think About Expansions, Renovations and Remodels

Many experts consider location to be the most important factor for buying a property with long-term appreciation value, but expanding a property also gives you another way to make money in real estate. Property expansion entails creating additional living space that gets input into the property’s value when it’s sold. However, there is a tradeoff when it comes to this, and you’ll want to calculate the cost of expansion in relationship to the value add. And don’t forget, property taxes are based on the value you’ve created.

Remodeling and renovation are not the same as property expansion, and investing in these will most likely not get you a return on your investment when/if you sell. But it doesn’t mean these aren’t worth it; buying a cheaper vacation home and then remodeling over time is one strategy to save money. In addition, renovations may give you the chance to rent out your home for more money, if that’s an avenue you choose to pursue.

The Takeaway

To paraphrase Frost, the woods may be lovely, dark and deep, but you have long-term financial promises to yourself – and to your family – to keep. There are countless factors to consider before making this type of purchase. So make sure you do the legwork to determine whether buying a vacation home is the right decision for you.

Personal Capital financial advisors can talk you through the factors to consider when making these decisions and help you determine how a vacation home purchase might impact your overall financial situation. Learn more about the wealth management services we offer here.

Personal Capital Advisors Corporation is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Any reference to the advisory services refers to Personal Capital Advisors Corporation. Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.​ Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk.

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  1. Steele Honda

    Thanks for pointing out that you should know ahead of time whether you are buying a vacation property for a better lifestyle, to make money, or a little bit of both. My husband and I are thinking about buying a vacation home because we would like to have a property to escape to and because we think it would be nice to rent out and make some extra income off of as well. I think that since we want to do both it would be smart to research vacation homes and find one that appeals to us and that would appeal to potential renters as well so that we can be successful in both respects.

  2. Nathan Carter

    I like that you state that waterfront homes have great views and permanent access to the beach. My family is looking into buying a vacation home that we can all use with our individual families. Thanks for the information, I will be passing it on to my siblings so we can look at all our options!

  3. Sam Perez

    Buying a vacation home for the rental purpose could be very profitable as it assures steady cash flow to the investors. However, the investors should be very careful while selecting such a vacation property. Location of the concerned property should be taken into consideration prior to investing in real estate. Besides, the quality of the property is also critical for the investors. In my point of view, one should take assistance from experienced professionals prior to invest in real estate.

  4. Derek Dewitt

    My wife and I want to buy a vacation home near the beach one day, so thanks for sharing this guide. I like your point about evaluating your long-term goals to get there. I’ll have to see if there are places we can save money in now so we can start saving more for the house.

  5. Gerty Gift

    I liked your advice to consider and understand how the current market is working. My brother is thinking about getting a vacation home to rent out. I think that this would be a really smart idea, if he took into account how everything would work out in the long run.

  6. Kenneth Gladman

    My wife and I have always dreamed of owning a second home. Not only to vacation to, but to see it appreciate in value. The key is getting the right property and for this reason we wan to use the right realtor.

  7. Sariah Meagle

    My parents like vacationing at the beach, so, they decided to buy a beach home. It was explained here that they should assess their finances and how to finance this property. Moreover, it’s advisable to consult professionals when planning to buy a vacation beach home.

  8. Vanessa Blair

    My parents are planning to buy a real estate property that can be the family’s vacation home. It was explained here that when planning to buy a vacation home, they should properly assess their financial status. Moreover, it will help a lot if we go to professionals when dealing with real estate.

  9. Marcus Coons

    It helped a lot when you mentioned how you should consider your finances when looking for a good property. I can see how anyone looking into this would also want to take the time to consult with a good real estate agent in order to find the best way to get your home. Personally, I would also want to take the time to consider my own needs in order to find the best way to buy real estate.

  10. Braden Bills

    It makes sense that vacation homes would be expensive to buy. Maybe I should just rent one instead! That would be a lot more cost effective, considering I only intend to use it for a little bit.

  11. Kayla

    My parents want to buy a waterfront home for their retirement. It was mentioned here that they should assess their finances before buying a property. Moreover, it will be best to buy a waterfront home for real estate investment.

  12. Kyle Wayne

    I found it interesting that you talked about knowing your reasons for buying and what you’re planning on doing with it. My godfather is looking to buy some luxury mountain homes for sale to both live in and rent. I think I will talk to him about hiring a professional to help out and to make sure he knows exactly why he’s buying.

  13. Bethany Birchridge

    I like that this article pointed out that you should know ahead of time what the purpose of your vacation home would be before buying it. My friend’s parents have a vacation home that is exclusively for family use, but they’ve been thinking of opening it up to rentals. What qualities should a vacation home have to be a successful rental?

  14. Taylor Bishop

    Thanks for the interesting read about getting a vacation home. It’s good to know that it’s important to understand the current market, especially since the local market could go up or down. You mentioned that working with an agent can help you get a good idea of the market, and I wouldn’t mind knowing some other steps you can take to help improve your knowledge.

  15. Sharon Wilson-Smith

    I like that you talked about how you must determine the type of vacation home that you want to purchase so you can narrow down your choices. My mother is interested to buy a beachside property which she can use for business as a rental place. At the moment, she’s figuring out whether or not it’s going to be a good investment, so I’m glad that I came across your blog. I will make sure to share your blog with her.

  16. Marisol

    I like your comment about looking into your finances. Sometimes I like to jump the gun, but now I am so excited to look for vacation properties for sale with my husband so that we can have a nice little get away! It just sounds so nice to have a home away from home.

  17. Keith Gumbinger

    These are great points. Arguably at least as important as the financial aspect, the current market and more is that you buy a home that you love and intend to use for a good long while. A vacation home that’s not convenient to get to, one that can only be used (or used effectively) for a short window each year can quickly turn into an expensive hassle. There’s a big difference between being able to drive a few hours and spend summer and winter weekends at the lake and occasionally flying to use the distant place you own.

    A slopeside ski condo or near-the-beach apartment is great, but may only have real value for a short period each year and only limited rental possibilities otherwise. For situations like these, you could be better off as the renter rather than the owner. You need to strongly consider the balance between use and ownership; you might only use the property for a few weeks each year, but you will own — and be responsible for it — for all 52, regardless.

  18. Ernest London

    I like that you mentioned to think about expanding a property to add long term value. My wife and I are looking for a vacation home to buy, but we are having trouble finding one that is right. I will have to give the homes we have already looked at another look and see if any of them are fit for an expansion. Thanks for sharing!

  19. Tyler Meredith

    I like what you recommend about considering the kind of vacation home you want. It makes sense that this is very important due to it being a large purchase and it requiring a lot of attention. I’ve been wanting to get a home somewhere and think that reconsidering exactly what I want could be helpful to make sure I don’t have remorse and to ensure I get cash flow from the people that might stay in it.

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