By Eric Chetwood, CFP®
My grandmother bought a beach house with some of her friends years ago, and as you’d expect, some of my richest and dearest memories of my family were formed there. it cannot be overstated how much we as a family have benefited from this simple little house on the ocean. It is a place where my family can recharge and reconnect. The emotional and relational return on investment has been amazing.
When clients come to me asking about purchasing their own vacation home, I understand the emotional connectivity and investment they are seeking. But I also know the potential financial risks of owning an expensive property that they only use a few times a year. Typically, I advise my clients to consider the following factors when they are considering purchasing such a property.
Be Realistic About The Costs
So, you have found the perfect mountain lodge or seaside cottage, and you and your spouse are overjoyed thinking about all the great memories your family will make at the spot. However, remember to delineate the financial investment from the emotional investment here.
Unfortunately, I have seen too many clients underestimate the cost of maintaining a vacation home, and that can turn it into more of a burden than a blessing. If you are dead set on making the purchase, go into it with your eyes wide open in terms of the costs of upkeep and maintenance. If you live far away from the property, you will need to outsource maintenance and upkeep to a trusted handyman or property manager and build those costs into the pro forma.
Consider Renting The Property
Instead of leaving your vacation home empty most weeks out of the year, consider renting it out to other people looking for a getaway. Personal use vacation homes that sit vacant use up a lot of money in exchange for little added value. I firmly believe that vacation homes that generate rental income are far more attractive financially than vacation homes that are strictly for personal use.
The income you gain from renting out your vacation home can be used to maintain the property, pay taxes on the property, and can even create an extra passive income for you to use as you wish. If you choose to only use the vacation spot for your own personal use, then the costs of maintaining the property will come out of your pocket.
Go In With A Group
It’s okay if the thought of renting out a vacation home to strangers is unappealing to you. It can be a risk in and of itself! If renting your vacation home is not an option, consider buying a vacation home with a few other families or friends. This is a great way to mitigate the financial burden as the cost of maintenance and upkeep will be spread out among several different families.
Also, remember that most people don’t end up using the vacation home nearly as much as they think they will, so splitting time with a few other trusted families can save money without sacrificing the enjoyment of the property.
Keep in mind that you can take some phenomenal vacations over the years for the same price as a vacation home. This means that you can take your family to different countries and regions year after year and have wonderful, shared experiences all over the world for the same amount as your vacation home.
So consider what makes more sense for your family. Is your family full of individuals inspired by adventure and new experiences? Or would they gain the most out of a familiar, beautiful spot where they can focus on rest and relaxation with those closest to them?
Let Us Help
Are you wondering about how your vacation home will affect your future financial plan? We can answer your questions. Schedule a complimentary introductory meeting online or reach out to us at email@example.com or (919) 287-5660.