Vacation homes. Dismal math & a dead horse

[Tangler]

I am sorry to beat a dead horse. This has all been discussed.

Guilty.

Let me reach for my stick (sorry horse).

Below are some forum posts and the WCI himself wrote a great pro con (links below).

Why am I posting this? The math. The sad truth is the math is pretty terrible for my particular situation.

Vacation home purchase is a very dumb idea from a financial standpoint, for me at least.

The price of the vacation homes near the water has become so absurd that property taxes + utilities + insurance are significantly more than I spend yearly on vacation while renting.

How much? Well, for an 600-800k vacation home this adds up to between 15-20k per year (conservatively). That is a lot of renting.

Wow, wait, 600-800k? Seriously?

Yeah, the areas I have looked have very sad houses for less than this. Near the beach is now crazy.

(Ok, first world blah blah, I know but this is the reality of the WCI forum nerds. You can “afford” a 200k down payment and a 15 year fixed etc.)

Like many things, you can “afford it” but it is pretty dumb.

Mathematically It makes no sense.

At least for me. You would need to rent it out a tremendous amount and someone will need to maintain it and clean in etc. to keep it "making" money as an investement.

If you are renting it out 85% of the time and either paying a management company (another expense) to clean it or worse driving back and forth to clean and maintain it yourself, how much of a “vacation home” is it for you?

If you rent it, it might get trashed. (You might get some money, Might even make a decent return, but there is always the risk of a storm or the HVAC breaks or ......)

If you do not rent it, it is an expensive luxury purchase that doubles your costs on property taxes, utilities, insurance etc.

I have not totally given up, but I am pretty close.

Perhaps another more intelligent approach:

1. Rent more. Just pull the trigger. Rent like crazy and explore. Go.
2. Use this exploration to find a place the family loves
3. Keep visiting this place / places and exploring
4. If you love a place enough (wife on board) sell primary residence and relocate to new area.
5. The math is found in the run the numbers in the link below but also must consider the following:
   1. You must live somewhere (you must have a primary residence or rent)
   2. Equity from home can be rolled into new primary home
   3. New primary home will not require doubling utilities & furniture & prop taxes & insurance.
   4. Selling new home also has a huge tax advantage (profit of up to 500k fed tax free, married filing jointly)

So, I guess what I am saying is the math is just so dang compelling that it makes it ridiculous.

I love the idea of a place near the water and I can “afford” it but it is just foolish.

I should take advantage of the fact that I am working part time and explore.

Rent places all around and see if there is a place more appealing that my current location.

If we find a place we both love, then carefully look at the market and buy a ridiculously nice primary home and keep to the one house rule.

Here are the prior forum posts and the WCI pro con article:

https://forum.whitecoatinvestor.com/...vacation-homes

https://forum.whitecoatinvestor.com/...sis-style-poll

WCI has a pro con debate:
https://www.whitecoatinvestor.com/pa...cation-rental/

Here is how he ends his pro con article:
“Maybe vacation rentals are the hot new asset class in real estate. Maybe they aren't. I have no idea. But tread carefully and run the numbers because every deal is unique.”

[Tim]

I am a little older than you. In the past considered a second home:
Lake house & boat (1 hour drive)
Cabo (flight)
Beach (1.5 hour drive)
Fla (beach & boat dock and flight)
Never pulled the trigger but wife, son and daughter all were enthusiastic for each. Why?
They weren’t paying for it and it was “free” to them. I think your wife’s reaction was like I feel, boy that was nice I wish it was longer.

Somehow a 4 day 3 night “getaway” came together for my family next weekend. The “demand” or “vote” was solidly some place different. Three separate bedrooms and flight time and value were the requirements.
None of the 4 options met the criteria because they weren’t “different”. “Dad, this is a getaway. We want something new”.

I agree that the “vacation” urge will not fade for you and spouse. I suggest you consider “renting” for a year to see if you really wish to live there.

You have a really serious kayak fishing addiction. One year of constant fishing might cure it or make you want to visit different places. Or you might be incurable. I don’t think you need two residences.
You can feed your addiction but you don’t really have a need .

Behavioral issues as much as financial. Both seem to lead towards renting. When time is available, you will still travel. Why not to Cape Cod? Something different,

[Hatton]

My honest opinion is that you can afford it but do you want it. I have owned more than one home before and found it to be exhausting. If you own it there will always be some chores to do.

[Kamban]

My thoughts about a second home / vacation property

If it is close enough and on a lake , beach or mountains ( 2-3 hours from home)

1. You think you might use it every weekend but after the initial enthusiasm of excess use it might get used once a month or less.

2. You will have to carry all stuff for use when you go there for a weekend or keep a second set of items there and replenish it and throw away expired / unused items.

3. You might spend more than half the weekend doing maintenance stuff on it rather than enjoying the whole weekend.

4. Things need to be done at the primary home for which you need some weekends ( maint, finances, upgrades etc). If you are away constantly from primary home those will get neglected and pile up.

5. The primary home is more comfortable. Better beds, better chairs, better food and cooking utensils, more familiarity with where things and so on that you will not find in a second home.

6. You are unlikely to make any money renting a second home to pay for all its expenses. If you do rent you might find that the times you want to go is when everyone wants to rent. Money trumps, and you stay at home and you go when it is not ideal to go.

If it is far enough that you will have to fly or drive a long distance ( e.g. living in NY and having a condo in FL)

1. Here it is more like a investment property that you have to rent in order to pay for itself. So Number 6 above applies.

2. Unless you are a snowbird, this second home being locked up 6 months or more does not make financial or common sense. Or the primary home being locked up for 6 months.

3. In my case I like to see the world. I don't want to spend twice a year or more going to the same property because I ended up owning it. I would like to see far away places before my time here runs out ( see thread on Luxury Egypt). I would rather spend 20K+ on a trip than all the headaches associated with a second home.

I can afford a second home cash down but would hate to have a millstone around my neck.

YMMV.

[Hank]

Where would you like to move after you retire? Consider moving there now instead of spending your working years somewhere miserable.

Don’t spend your whole career miserable in New Jersey and then move to Florida or Hawaii or San Diego. Now you might not be able to get a job as a surgical oncologist in the Florida Keys, but there are jobs in Miami, Tampa, and Orlando.

If your plan is to retire in the mountains in the middle of nowhere, you might have trouble if your pediatric subspecialty essentially requires you to work at an academic institution. Maybe you’ll be in Denver, Salt Lake, or Boise. But if you hate snow you can’t ski downhill on, don’t stay in Detroit or Buffalo.

Live someplace awesome that still can support your career goals. Then spend $10K or $20K with wild abandon to see other parts of the globe while you’re on vacation.

It’s a free country. If you always want to spend your vacation time or weekends going to the exact same place I suppose you could. It certainly isn’t my cup of tea.

[bovie]

Consumption items versus investment. It is one of these things, not both.

You either buy it and bite the bullet on the cost, or pass knowing that you can afford but can’t stomach it.

My personal opinion is that you can take a lot of vacations for $600-800k, with no maintenance or upkeep.

But I’ve also never found a specific place that I would prefer to return to over and over (and over) versus going somewhere new.

Once you have the vacation property you are almost obligated to go there over anywhere else.

That said, as I’ve mentioned before, it seems like it would make you very happy on a day-to-day basis.

But clearly the financial side is consuming your thoughts, and maybe would decrease the pleasure you derive from this to the point it is no longer a positive in your life.

Only you can know this.

[VagabondMD]

As previously discussed in a separate thread, I am also seriously considering at a second home purchase. It violates all math, personal finance, and common sense rules. It is expensive ($1.5M plus). It is far away (12 hour drive). I will not be able to use it fully until summer, 2024. I hate doing the chores and maintenance for one home, so why would I want to double those headaches?

Here is the logic:
1. We can afford it. We have decided to put off an actual purchase until spring, 2023, at the earliest, unless the "perfect" property is available.
2. We plan to use it progressively more over time, perhaps living there a majority of the time within a few years.
3. Once acquired, we plan to downsize the size, cost, age, and headaches of the current home.
4. (Might be illogical) I want to have a blue state refuge in case things get crazier in our red state.
5. If it does not work out, we can always sell it.*

I am sure that you have a similar pros and cons list. If you are thinking this much about it, and you can obviously afford it, why not try it? If it does not work out, you can sell it, maybe lose a little money in the process, but you will have done it and not wondered how it would have worked out. If it works out well, maybe you increased your life happiness.

[Marko-ER]

Waterfront on a nice, private lake in my neck of the woods (2-3 hour drive from my primary residence) is around 250-350K for a reasonable 1500 sq foot cabin. We are in the upper midwest, with nice summery weather running from late April through mid-October.

We have 2 young kids (<3yo), and that will preclude longer trips or renting for at least 3 years. We also have friends and family in the area who use the cabin and have thrown in a 100$ here and there to cover some expenses. We can also rent the place tax free for 2weeks a year through VRBO, which largely covers property taxes (so called "Augusta rule" Augusta Rule, IRS as Section 280A). With expected appreciation minus maintenance depending on the real estate market & rates of inflation, we think we can break even or perhaps make a small profit. Think long & hard before you buy, but if it makes sense for your own situation do not let some anonymous posts on the internet either persuade you or dissuade you.

[Marko-ER]

Consumption items versus investment. It is one of these things, not both.

You either buy it and bite the bullet on the cost, or pass knowing that you can afford but can’t stomach it.

My personal opinion is that you can take a lot of vacations for $600-800k, with no maintenance or upkeep.

But I’ve also never found a specific place that I would prefer to return to over and over (and over) versus going somewhere new.

Once you have the vacation property you are almost obligated to go there over anywhere else.

That said, as I’ve mentioned before, it seems like it would make you very happy on a day-to-day basis.

But clearly the financial side is consuming your thoughts, and maybe would decrease the pleasure you derive from this to the point it is no longer a positive in your life.

Only you can know this.

I slightly disagree, depends on how you structure things. Definitely more of a consumption than an investment but sometimes it can be a bit of both. Do the math & as always caveat emptor. See my post above.

[StarTrekDoc]

This is why we live in san Diego 😍.

Those with second homes near the beach don't worry about the math.

If the math is driving the equation The question I would ask. Is it worth a 2nd home several blocks away from beach or renting one in the beach?

That is why we went with timeshares for our travels and Disney addictions.

[Random1]

Could you do a yearly rental of a property and actually see how often you go there?

[JBME]

Even if we can afford it I will likely never do this. My wife has entertained the idea and continues to do so but I think on this issue we won't actually pull the trigger. I have tried the math explanation above but it's not working. Each time we vacation in a similar part of the state she sees a bill for like $2-$4k and thinks we're throwing it away because we'd "save" money by buying a vacation home instead. I try to say well if we get a house for $400k (which is probably pretty bare bones for where we'd look) we'd have to come to the vacation home 100 times just to make it work for the purchase price. Doesn't include expenses like maintenance, property taxes, insurance. 100 times is a lot. Bottom line, this is a consumption item. If you want it and can afford it, do it. I don't want it.

So that math argument didn't work. What I think she does realize more is I tell her 1) once we have it I will personally feel compelled to go as often as possible, even at the expense of not going to other places....in other words, it will tie us down and limit our opportunities to vacation elsewhere. And I would probably nag her that we would need to go even if she doesn't want to, and this would be bad for our marriage. And 2) we'd both feel pressure to take care and maintain the place while there when we're supposed to be on vacation relaxing. I just don't see how you can relax when you're fixing things in your home. Plus we don't know what's going on when we're not there, which could be months at a time.

Those 2 things seem to resonate more with her. All of it resonates with me.

Oh, and most people want vacation homes by water. Like you can walk to the water. Two big issues. If you're on a lake, you need to worry about flooding. If you're by the ocean, at least on the east coast or the gulf coast, you need to worry about storm surge from hurricanes. This sounds stressful. Want a home in the mountains? Worry about forest fires.

[JBME]

That is why we went with timeshares for our travels and Disney addictions.

Timeshares?! You're locking yourself into a commitment which sounds...not relaxing. "Oh I guess I have to go on vacation now whether I feel like it or not." Not as expensive as a vacation home but at least a vacation home could appreciate and you'd make some money up for the loss you take. Timeshare is money down the drain and you face serious headwinds in getting rid of it

[Tim]

Typically two homes make sense when you actually plan on splitting time.
6 months in one or 6 months in the other (or any other reason or split). Some do it for the weather, some do it for kids, some do it just be cause they want a change of pace. You can afford it.
My spouse wants to downsize. Too much work. I ask what do you want me to do. She ignores it and says something like “Where?”
I have learned, I will let her answer the question.
I would float the bait, What about moving?
Go from there.

[StarTrekDoc]

Keyword. Disney addiction.

You get three years to burn through points and managed right. The key isn't using them, but not buying more points.

Its the one serious vice we have.

But there is a limit. We're not renewing our season passes this next year for Disneyland since we're spending 10days at wdw 🤩😍