When is it the right time?
Buying a vacation home is, for some, a sign that you have succeeded in life. For others, it represents a more practical assessment of spending over time; if you travel a great deal, you may find owning a vacation home makes more sense than paying for hotels and resorts. In either case, though, you need to go in with your eyes open. For all but the most wealthy, this means conducting a cost-benefit analysis and determining whether buying a vacation home is a help or a hindrance to your goals.
Can You Afford It?
This represents the most fundamental piece of your analysis before you buy. The mortgage payment on your vacation home is only part of your cost structure. You will pay property taxes on your vacation home based on its assessed value, regardless of how much you live there. You also have insurance and maintenance to consider. And when your house goes unoccupied over time, you should plan on a security system to protect it from burglars who prey on empty homes.
One aspect of affordability is whether you want to rent out the home when you are not there. Rental income can make a huge difference, but even then you need to assess the risk of long-term vacancy and the costs of marketing and maintenance. Understand your worst-case scenario before you move forward.
Do You Have a Favorite Destination?
If you vacation in the same area every year, buying a vacation home can make much more sense than it does for those who travel throughout the world. You want to purchase a property you will use regularly for vacations, rather than one you might only see every few years. It would be silly to purchase a home in a place to which you will rarely return. Purchasing rental property need not come with an expectation of regular visits, but if you have a vacation home, you should plan to spend time there often.
What Are Your Long-Term Expectations?
Do you plan to eventually retire and move into your vacation home full-time? Buying a vacation home under these circumstances can be an investment in your future, almost like a down-payment on your ultimate retirement package. If you plan to eventually sell, though, you should make sure you will be able to keep up with the property and increase its value over time.
No risk-free investment exists in this world, including real estate. You may move later than you expect, or you may have difficulty selling when you are ready. You need to have contingency plans in place and prepare for a multitude of possibilities. Otherwise, you risk saddling yourself or your heirs with debt. Make sure you are ready and know what you want before you make the move toward buying a vacation home.
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