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Is a Vacation Home a Good Investment?

is a vacation home a good investment?

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Published date:

December 21, 2022

Last updated date:

December 21, 2022

By Manny Manriquez

At first glance, the idea of owning a vacation home is certainly a tempting one, especially if you have a specific place in mind that you love to travel to. But buying a vacation home is a major investment, so it’s important to understand the full picture of what it entails before deciding that the purchase is worth the price. Sales of vacation homes rose 16% in 2020, and another 33% in the early half of 2021. This coincided with two big trends in the housing market: buyers looking to take advantage of their ability to work remotely, and buyers looking to capitalize on a growing global demand for private vacation rentals. Whether your intent is to use a vacation home for personal use or as a rental property (or both), knowing what you’re getting into is half the battle in ensuring that it pays off. Here are some things to consider as you decide whether a vacation home is a good investment, all of which should be top of mind during your search.
  • As is true with any housing investment, location matters. If you’re just buying a vacation home for your own enjoyment, then location will matter most in terms of eventual demand and resale value. If you’re buying for a rental property though, you’ll need to consider how hot the tourist market is in your desired area and whether you’ll have enough interest month-after-month to help cover costs.
  • Short- and long-term financial goals. If buying a vacation home means taking some big steps back from your financial goals, then it might not be the right choice at the moment. Upfront costs, maintenance costs, taxes, and potential management costs add up quickly, and all will have to be factored into your budget as you decide if it’s a feasible investment.
  • Price comparisons. The vacation home market has faced the same price challenges as the standard residential market, with huge increases that aren’t necessarily supported by market history. If buying the vacation home of your dreams entails overpaying on the list price, you may be better off waiting until the market cools down.
  • Financing logistics. When you finance a second home, you’re usually expected to put down a larger down payment and take on a larger interest rate. That’s because banks know these types of investments can be risky and don’t usually hand out mortgages as freely as they might for a primary residence. Make sure you have the cash on hand that’s necessary for this type of loan, or, even better, that you can forego a mortgage entirely on the property.
  • Your own travel plans. Assuming your vacation home is for personal enjoyment, be realistic about how often you’ll be able to go out and use it. Depending on the distance of the property from your primary residence, the climate, and the general cost of travel in the area, it may make sense to own your own home there – or it may not.
As with any type of real estate purchase, deciding if a vacation home is a worthy investment ultimately comes down to a benefit-risk analysis. But if you’ve got the money, time, and desire to buy and maintain a vacation home, then this is one investment that might just pay off big time in financial growth and personal satisfaction. Like this article? Please feel free to share or post a link to your site:

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