Should I buy a vacation home? Have you been thinking of buying a vacation home, maybe somewhere close to the water, or a cabin up in the mountains? It would be nice to have that getaway, right? And doing AirBNB regularly can be quite expensive. In this blog, I will be sharing five questions that you can ask yourself to help you decide whether buying a vacation home is a smart move.
Question One: Can I afford a vacation home?
Once you find a property that you like, add up all the costs that are associated with owning it. Start with a monthly mortgage, which is the principal and interest, add to that the property taxes, homeowner’s insurance (if you live closer to water, you might need to think about getting flood insurance as well), and the monthly maintenance costs that might be associated with owning this property. Now, let’s say all of this adds up to $700 a month, for example. If you have $700 a month to spare in your budget, then you may be able to afford it. Or maybe you actually have the cash to buy this property outright. Then you can move to question two.
Question Two: Will it derail my other goals?
If you are thinking about buying this cabin in Lake Michigan, which you really enjoy going to with your family, and you’re thinking of buying this property outright, let’s say it’s $100,000. Then, maybe you compute your retirement scenarios, which you might want to seek help from a financial planner in doing this, and you discover that if you do this, you might delay your retirement by one and a half to two years. Just having those numbers in front of you can help you decide whether or not this cabin that you’re thinking about is really important for you. Maybe it’s okay with you to delay that retirement goal of yours, or maybe that’s too much of a trade-off. That’s up to you to decide if your other goals take priority over the vacation home goal.
Question Three: How often do I plan to use this vacation home?
So I just came back from a camping trip at Assateague Island, in Maryland with some of my friends. I just really had a blast, I have to tell you. I really enjoy being close to the water, enjoying that ocean breeze, and seeing actual stars at night because there’s less light pollution there. And I thought to myself, you know, I can’t just be doing this once a year. It’s only three hours away. I should be spending time here, like once a month or once every two months. So if you have that place you go to and you really like going there, it energizes you and you feel like you’re probably going to be there once a month on a weekend and an extended period during the summer, then that’s another point towards saying yes towards that vacation home.
Question Four: Is it less costly to buy this property or to rent this property?
So one good way of doing this exercise is to think about your last mini vacation. Let’s say you spend around $1000 renting a cabin up at the Adirondack mountains for five days with your spouse and two kids. You’ve thoroughly enjoyed it. Now, if you find a similar cabin or property in that area and your monthly mortgage total plus other expenses is only $700 a month, and you plan to use this at least once a month, then it looks like buying might be less costly than renting. You’re also building up equity over time. That’s another point towards saying yes, towards this vacation home.
Question Five: Am I willing to take care of another property?
When you own something it will demand portions of your time. So if you get a car, you’ll need to wash it every now and then and take it to the dealer or a mechanic for maintenance. If you buy another property, things will break down and you’ll need time to fix them, or you’ll need to find someone else to fix it, which costs time looking for that person, and money to hire them. So just make sure that you’re okay with that time commitment before committing to purchasing a vacation home. It’s not all vacation time when you own it!
We hope that answering those 5 questions helped you decide if you should buy a vacation home or not. If you still feel strongly about buying that vacation home, and you would like some practical tips on how to save for that 20% down payment, schedule a free Discovery Call with one of our financial planners today!
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.