Investing In A Vacation Home: The Pros And Cons

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Let’s talk about vacation homes. As many of my long-time readers know, I absolutely love real estate. I love talking about it, I love renovating it, and most of all, I love owning it. I’ve experienced ups and downs when it comes to owning property and, even though it’s not always a walk in the park, I still recommend it as a diversified investment option – as long as you do your homework and know what to expect.

And with that, this collaborative post explores the pros and cons of investing in a vacation home in more detail. Let’s do this.

mountain view - vacation home

The view I want for my vacation home. #goals

There are various reasons people feel the urge to invest in real estate. Some people want a project and prefer fixer-uppers, while others want to be landlords with buy and hold properties.

However, there is one area of the market that is becoming increasingly attractive and profitable for those who have done their homework and are willing to take the plunge. This is the area of vacation properties.

From country retreats, like those at The Lodges at Eagles Nest, to beach-front houses for sun worshippers, the possibilities are almost endless for anyone looking to get into this kind of investment.

As with any sort of investment though, there are the usual pros and cons. So if this is something you have been considering, it’s worth looking at the benefits (and otherwise) before making a purchase.

The Pros Of Owning A Vacation Home

  • This could become a viable business. Many people vacation every year, so if you were to purchase something in a popular and attractive location, you are going to attract a lot of customers. They do need somewhere to stay, after all, though the property can be furnished to such a high standard, that living in it can be a vacation in itself, regardless of the location.
  • You may be able to make a higher yield from a vacation property than traditional rental properties. This is because you are able to charge a premium for the stay, as vacation accommodations are often in high demand. Provided you have created a vacation home worth living in; you will have no problem finding somebody looking for a place to stay. Not only that, but you can guarantee return visitors and positive word-of-mouth from customers, leading to further business in the future.
  • You can live in it! After all, you deserve a vacation from time to time. So in quiet off-peak seasons, you can take advantage of the property and spend time there yourself. Of course, the property can also be accessed by family and friends who are also in need of a vacation. It’s amazing how many people will crawl out of the proverbial woodwork when they discover you have a top-notch vacation home in a beautiful location. Then, of course, you’ll also have a perfect home to enjoy your wonderful retirement in. A house by the sea? One in the mountains? The choice is yours!

The Cons Of Owning A Vacation Home

  • You will still have to act as a landlord and manage the property, but this can be a problem if you live some distance away from it. It may be worth hiring a few people in the local area to keep an eye on the property for you, such as a property manager and a local tradesman who can carry out maintenance checks. Whatever the case, you will still have to spend money on the property when it’s in and out of use to make sure everything is up to snuff for your vacationing customers.
  • There are the holding costs to consider. When you can’t find a tenant, especially in off-season times of the year, you will still have to pay the mortgage (assuming you have one), insurance costs, and all of the maintenance fees. This could leave you paying out of pocket if you didn’t manage to turn enough of a profit to cover the lull during the peak season.
  • As with any rental property, you can still attract the wrong tenant. This is particularly difficult for vacation homeowners, as they generally don’t carry out the stringent backgroundchecks when somebody is booking the property for a week or two. Any damage can go unnoticed for months if you aren’t able to check on the property on a regular basis, leading to further issues down the road. Having a property manager can be worth its weight in gold to avoid or address any unexpected damage from a bad tenant.

Other articles you might enjoy:

Renting Your Vacation Home

Mad Money Cat - vacation home

Mad Money Cat is planning to buy a vacation home in the mountains. #lovestoski

In the event you plan to rent your vacation home when you’re out of town, seriously consider these things BEFORE taking the leap: 

  • How long is the vacation season is the area?
  • What do marketable properties in the area have to offer?
  • What are average rents for comparable properties?
  • Does the home have great views?
  • How many people can the home accommodate?
  • Can the home accommodate families?
  • Speak to real estate experts and property managers
  • Make sure the property meets local codes
  • Liability insurance

Expectations

 

Running the numbers is just the beginning. But, if you feel confident in your analysis and decide to move forward and invest in a vacation home, it can be one of the best things you’ll ever do! And, you better let me know about it because, well, like I said, I love real estate!

We have definitely considered purchasing a mountain house that could double as a rental property when we’re not there, but we’re still very much in idea mode and a long way from a final decision.

What are your thoughts on the value (both emotional and financial) of vacation homes/rentals?

6 comments… add one
  • Jason Dec 7, 2017, 8:22 pm

    I told the Mrs. that our next house was going to be on the water whether that was the ocean or the lake. Lake is probably more viable but I would love a ocean home in Maine or lake home in Minnesota or Maine. Of course, having a beachfront condo where the sun is wouldn’t be so bad either. We definitely think about doing it, but the truth is I am not sure if we should do a lake house and/or somewhere near the beach in another country. Part of it is my fragmented brain on where I would like to live retirement or the like.

    • Mad Money Monster Dec 7, 2017, 8:26 pm

      We flip and flop, too. They all sound fabulous to me. The best part about FI – options!

  • Accidental Fire Dec 5, 2017, 5:26 pm

    That pic you used is of the Maroon Bells in Colorado, one of the best views in the lower 48!
    I too hope to have a vacation home one day, but for me I’m probably more of a cabin-guy. The line between home & cabin is blurry, but my ideal place would be pretty rustic and perhaps off the grid.
    Great post!

    • Mad Money Monster Dec 5, 2017, 7:42 pm

      Yeah, I flip and flop between buying a second home close to a ski town and hitting the road to live in a van. Ha! You gotta love options 🙂

  • FullTimeFinance Dec 5, 2017, 10:39 am

    I fully expect at some point we’ll have a vacation home. It will also probably be our retirement home which helps to increase its relative worth.

    • Mad Money Monster Dec 5, 2017, 1:03 pm

      Yeah, we often talk about a mountain house for vacations. We’ll see!

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