Purchase a vacation home ?

[RAE]

We've been snowbirding (for about 3 months) for the last 8 or so winters now - first to Texas, and this winter to Florida. For us, renting a place is an easy decision. For one thing, we like having the option to change locations if we so desire. Hurricane Harvey hit the area in Texas where we had been going, so we had no choice but to go somewhere else the next winter, and it worked out fine for us. There is no way I would want to deal with all the expenses and hassle of owning a place down south as long as we are able to find affordable places to rent. Yes, rental prices are going up in many areas, but the sheer number of rentals out there usually means you can find something in your price range, in a location that works for you. At least it has worked for us so far, so we have no plans to buy a place down south.

 

[pb4uski]

... Due to maintenance issues, I could not imagine owning a second home hundreds or thousands of miles away. What a total PIA!

That is the beauty of condo living... all I have to do is clear the fridge of stuff that will go bad, turn off the water, set the thermostat/humidistat and lock the door. Easy peasy.

 

[RenoJay]

I just sold my vacation home. I made money on it since I bought close to the bottom of the downturn. But it appreciated slower than homes in the nearby town that has the jobs. Personally I would NOT go for it. I do a lot of real estate stuff and am seeing signs that there will be better opportunities over the next couple years. Hey think the real estate market is still too frothy and that vacation homes get used a lot less than owners anticipate, and have much higher level of ongoing expense/headaches than anticipated. If it were me I’d simply pass on this opportunity and instead splurge on some nice vacations here and there.

 

[sheehs1]

About a year and a half ago I did it. I purchased a 1,200 sf 2 bed, 2 bath water front condo on the Chesapeake Bay in Va. It was a quality of life decision, a little over an hour from my inland home and love it! Since my home is in a small city with few choice of amenities, the condo has given me access to more things to do, much better restaurants, grocery stores, better shopping alternatives, and a community of like minded people.

This condo is not a headache for me. Like other posters said, I adjust the thermostat when I leave, I don't turn the water off since I return often (most but not all week-ends but not the cold winter months as it's brutal on the bay in the winter Jan/Feb).

I do take a lot of stuff back and forth as I have not gotten to the point where I am comfortable leaving "that skirt, dress, those shoes or top"..that i might want at my other place. so I stay "packed" to some degree, so to speak. I"m sure I'll get over that eventually!
I am able to take my dog with me and not worry about boarding, etc.

My yearly carrying cost are about $800 a mth, including taxes, insurance, HOA, Utilities, TV and Internet. Similar to what you are expecting for your costs

I had looked for years for "the right fit" in both coastal Va. and coastal N.C.
What helped me make the decision when I'd found the right fit was this thought.
"If not NOW, When". I wasn't getting any younger!

It is a personal choice. Best of Luck with your Decision.

 

[Ronstar]

That is the beauty of condo living... all I have to do is clear the fridge of stuff that will go bad, turn off the water, set the thermostat/humidistat and lock the door. Easy peasy.

+1. We do the same thing. Very easy.

And I had a pleasant surprise when we returned - I left 1 beer in the fridge last March when we left.

 

[omni550]

+1. We do the same thing. Very easy.

And I had a pleasant surprise when we returned - I left 1 beer in the fridge last March when we left.

I always leave a few beverages in the fridge. It's very nice to enjoy upon arrival.

omni

 

[Floridatennisplayer]

I'm following this conversation closely as I'll be in the same situation. I want to find a vacation home in Florida. Either as a permanent residence or a three to four months a year place and possible rental.
I can't get FloridaTennisPlayers post out of my head while reading this thread. It beautifully painted a picture of what I want.

Cheers!

Ha! We just got back and loved every second. Could not fathom not having our place. Maintenance? We have a gorgeous condo on the course in a gated country club. No maintenance to do. When we leave, set the thermostat, turn off the water, and lock the door.

 

[HadEnuff]

Our annual carrying costs (condo fees, insurance, property taxes and electricity) are a little less than 3 months of in-season rent. We bought for cash.

The annual opportunity cost of money net of the annual appreciation is a little less than 2 months of in-season rent.

If I put them together, our total costs are just a little more than 4 months of seasonal rent... so our break-even point is 3 to 4 months depending on what you include.

We had planned to rent 3-4 months a year but ended up buying when an opportunity to buy in the area we wanted to be in popped up unexpectedly at a time that we couldn't find a seasonal rental... since we now have the place, we spend almost 6 months down here for essentially the same annual cost as a 3-4 month seasonal rental. We are in a late 1970s era association that is well maintained but admittedly the common areas are a bit dated.

Just curious, when did you buy? I don't have the cash handy for such a purchase, so I have to figure in the mortgage costs. I'm not too surprised to hear that without the mortgage interest, the right opportunity at the right price could bring the carrying costs down more to the 3 month in-season rate.

 

[wdberry62]

To each his/her own, but if it were me, I'd save the money and the hassle and vacation wherever you want. These vacation homes tend to become a liability rather than an asset; a source of worry rather than enjoyment. I've seen that first-hand with both my parents and in-laws.



I vowed never to make the same mistake.

 

[Floridatennisplayer]

I have also rented my condo to a sweet older couple for the past 3 years in the winter...as I’m not retired yet, for 90 days. And that covers all but $1,100 of my total yearly costs.

I know of some people who rent out their place for just January and February then come down March-May. I asked why would you do that? Their reasons:

An easy $7,000 cash to defray their ownership costs
Less people! Less traffic, restaurants, shopping
Love the weather in March-mid May.
Also come down in mid October and come back home just before Christmas

Now, I am a thinking I like this idea.

 

[Floridatennisplayer]

To each his/her own, but if it were me, I'd save the money and the hassle and vacation wherever you want. These vacation homes tend to become a liability rather than an asset; a source of worry rather than enjoyment. I've seen that first-hand with both my parents and in-laws.



I vowed never to make the same mistake.

Perhaps a stand alone house in a neighborhood. I would never attempt that.

But with a home or condo in a private gated country club worries like that have never crossed my mind.

 

[pb4uski]

Just curious, when did you buy? I don't have the cash handy for such a purchase, so I have to figure in the mortgage costs. I'm not too surprised to hear that without the mortgage interest, the right opportunity at the right price could bring the carrying costs down more to the 3 month in-season rate.

Au contraire... at least with the assumptions that I am using, a 4% mortgage with 20% down is only $500/year more. I'm assuming that the money that I tied up in the property would have earned 6% in my portfolio and that the property appreciates 3% a year (it has actually been a bit better).

We closed in June 2016 and a friend bought a similar condo in March 2018 (identical layout and floor) for 107.5% of what I paid.

 

[pb4uski]

I always leave a few beverages in the fridge. It's very nice to enjoy upon arrival.

omni

+1

 

[Scuba]

Au contraire... at least with the assumptions that I am using, a 4% mortgage with 20% down is only $500/year more. I'm assuming that the money that I tied up in the property would have earned 6% in my portfolio and that the property appreciates 3% a year (it has actually been a bit better).



We closed in June 2016 and a friend bought a similar condo in March 2018 (identical layout and floor) for 107.5% of what I paid.

Not to be negative, but vacation home markets often don’t have steady appreciation. When real estate takes a dive, vacation homes are hit much harder because second home owners or investors will allow the vacation home to go into foreclosure long before primary homes. In many markets with a lot of vacation homes, property values decreased by 40-60% during the Great Recession, and values took much longer to recover than the financial markets did.

Not to say someone shouldn’t buy a vacation home if they enjoy the lifestyle and can afford it, but I would never count on appreciation or assume it when comparing cost of ownership to annual rental costs.

 

[ivinsfan]

Not to be negative, but vacation home markets often don’t have steady appreciation. When real estate takes a dive, vacation homes are hit much harder because second home owners or investors will allow the vacation home to go into foreclosure long before primary homes. In many markets with a lot of vacation homes, property values decreased by 40-60% during the Great Recession, and values took much longer to recover than the financial markets did.

Not to say someone shouldn’t buy a vacation home if they enjoy the lifestyle and can afford it, but I would never count on appreciation or assume it when comparing cost of ownership to annual rental costs.

This and this again. Not all vacation homes are created equal. Beachfront nice weather will fare better then a lot of other vacation homes in a downturn. Other areas maybe not so much. In our favorite area of Southern Utah homeowners who bought at the peak are still far underwater. The builders went broke and gave their unfinished developments back to the lenders. After things started turning these same builders formed new companies and bought the developments back for pennies on the dollar. There is a never ending supply of new homes priced low enough to keep the 10 year old homes from ever appreciating.

Be cautious about assuming you will build equity in your vacation home.

 

[pb4uski]

Not to be negative, but vacation home markets often don’t have steady appreciation. When real estate takes a dive, vacation homes are hit much harder because second home owners or investors will allow the vacation home to go into foreclosure long before primary homes. In many markets with a lot of vacation homes, property values decreased by 40-60% during the Great Recession, and values took much longer to recover than the financial markets did.

Not to say someone shouldn’t buy a vacation home if they enjoy the lifestyle and can afford it, but I would never count on appreciation or assume it when comparing cost of ownership to annual rental costs.

I agree... the 3% I assume is a long-term average. Values in the area of our winter condo are more volatile than at our main home but I went into that eyes wide open knowing the values will be more volatile... at the same time, our investment is about 8% of our investable assets so if it goes sideways it isn't going to ruin us.

 

[HadEnuff]

I agree... the 3% I assume is a long-term average. Values in the area of our winter condo are more volatile than at our main home but I went into that eyes wide open knowing the values will be more volatile... at the same time, our investment is about 8% of our investable assets so if it goes sideways it isn't going to ruin us.

My uncle, who was mentor of mine in many ways, including financially, once told me that when considering things like this, imagine the worst case scenario and make sure you can survive that. He gave me this advice right after we listened to one of his best friends talking about a home in Myrtle Beach he was considering buying. He was making a lot of very rosie projections about appreciation, and rental income. My uncle's point being, of course, to make sure you are OK if all of those ideal situations don't pan out.

 

[pb4uski]

For us it was more a life-style decision than an investment decision. There was no question that we were going to spend at least 3-4 months each year in Florida... it was more whether we would rent or buy. So far, buying has turned out way better... since we own and are paying for it anyway we actually spend 5-6 months here so unless things went sideways in a big way it is still better than renting.

 

[HadEnuff]

in 1993 my recently retired parents bought a condo on Bonita Beach. It was a stretch for them, but in the 15 years they owned it, it tripled in value. Because it was on the beach. The hit that everything took in 2008 had an effect on the value of that place, but it was minimal and short lived. The places more inland took much bigger depreciation, and has taken a lot longer to recover, simply because those places can be duplicated, but as the saying goes, "they ain't building any more beaches", or something like that.

I have been an observer of the phenomenon in central Florida, known as The Villages, for about 12 years, ever since close friends of mine bought a place there pretty much on a whim while making a Christmas visit to a relative. What the locals call "drinking the kool-aid", they were swept away by the polished sales approach, including being told that the Baby Boomers will be retiring in droves, wanting to come down here, and that "build-out" was just around the corner.
Well, the first part was true, but the developer has continued to buy and develop, and the place is at least twice as big as it was when my friends bought. Adding to the glut of developer homes being built at a pace that would make your head spin, the natural attrition that occurs as old people get older, infirm, and die off provides a steady supply of resales.

The developer has also done a good job of learning what younger, newly retired, more affluent Baby Boomer retirees want in a home, and a neighborhood, and what is now being provided has more appeal to the newly retired than the "older" neighborhoods.

What this all means is that while properties have appreciated over the last 10 years, not much more than the wear and tear on the properties that occurs in the hot Florida climate, and the maintenance required to offset that wear and tear.

I am going to snowbird there this winter, for the first time (I've visited several times), and part of me has been intrigued by the prospect of ownership, but as far as real appreciation of the value of the property offsetting the carrying costs, I have my doubts, as I am on the tail end of the Baby Boomer (born in 1953) generation, and I have a suspicion that around the time I want to sell, or my progeny, there will be a reverse effect of so many Boomers wanting out, and no Boomers behind wanting in. It's just a theory, but I think it makes sense.

 

[HadEnuff]

For us it was more a life-style decision than an investment decision. There was no question that we were going to spend at least 3-4 months each year in Florida... it was more whether we would rent or buy. So far, buying has turned out way better... since we own and are paying for it anyway we actually spend 5-6 months here so unless things went sideways in a big way it is still better than renting.

Absolutely, and that is a very important point. My folks weren't looking to make money, that was a bonus. It was how they wanted to spend their last decades. And they were the happiest years of their lives.

I was trying to compose a post making the point that "vacation home" might mean different things to different people. What you have done, and what my folks did, I would not say qualify as "vacation home" purchases, but maybe "lifestyle enhancement purchases" or something like that.

When I think of "vacation home" purchases, I think more of the person who is still working, has two weeks a year to spend in Hilton Head, and decides "hey, why pay rent on this place when I could buy a place, use it for free for two weeks, and rent it out the other 50 weeks and make money on it"...It sounds great, but often works out to be more of a drain on the finances rather than a boom.

 

[HadEnuff]

Getting back to my study of The Villages, they sell a "lifestyle", essentially, and when my friends first bought, I was still a decade from retirement, and so were they. I had the Kool-Aid half way down my gullet, myself, and I realized a couple of things that kept me from pulling the trigger.

1. Buying a place in a retirement village did not make me retired.
2. Buying it would likely delay my retirement because the rental market there is hot for January-March, lukewarm December and May, and pretty damn slow the rest of the year, and even if I were to rent it out, my rental income would not cover my carrying costs.

3. because of 1 and 2 above, I would essentially be subsidizing someone else retirement.

My friends are there now, and happy, but what I decided would happen to me did happen to them. Someone else used the place for the best months, and while the property seems to have had some appreciation, not anywhere close to the difference between what it cost them to own and what they brought in with rentals. And they had to work a few extra years. But they got the place they wanted, where they wanted, so from a lifestyle decision it worked. From an "investment" perspective, not so much.

 

[Scuba]

For us it was more a life-style decision than an investment decision. There was no question that we were going to spend at least 3-4 months each year in Florida... it was more whether we would rent or buy. So far, buying has turned out way better... since we own and are paying for it anyway we actually spend 5-6 months here so unless things went sideways in a big way it is still better than renting.

You were able to pay cash for your second home, so I agree with you that even if the value dropped 50%+ for a few years, it wouldn’t really impact you as your holding costs aren’t substantial. The OP was suggesting taking a distribution from a Roth or using debt to finance their purchase because they didn’t have available cash to purchase it.

Quite a different situation. I think you and I are in agreement that potential appreciation really shouldn’t be used to justify a purchase, especially if debt-financed.

 

[bclover]

So two of my siblings are snow birds and have second homes. they absolutely love it.
So I asked their opinions.

1) as mentioned here usually they can be financially draining. My sister has a place in the Virgin Islands and my brother in Vegas.
2) they don't consider them "vacation" as most folks vacation for a few days then return to their "real" lives.
3) they love their second home places. they still go other places for short true vacations. they have not tired of them. My sister could very happily go the rest of her life without ever having to wear a winter coat. so she escapes the northeast from Thanksgiving to darn near June.
4) both could rent it out if they wanted to but they did not buy it for real estate investment.

I have a timeshare in Florida, I love, love, love it. I have yet to tire of it and have gone annually since 1999. that maybe an option

 

[Winemaker]

DW and I have been scouring the US looking for a place to snowbird to, and hopefully using a 1031 exchange as we have 3 rental properties. Many, many issues to consider, but right now none make any real sense. Snow bird properties in FL that are warm during Nov-Apr, are too darn hot May-Oct. BIL and SIL have a place near Ft. Myers, and we visit them 3x a year, but they come back to Ohio for summer months to visit grandkids and boat on Lake Erie because it's too hot. We want a place that is 1 plane ride away, and certainly Ft. Myers area fits. We love Hawaii, but it takes 12-16 hours to get there. Economically, a 1031 exchange starts the depreciation schedule all over again, but if we sell our oldest property, we get taxed at 25% on the depreciation recapture, but we're going to be in the 22% bracket now till we die. I think we are just going to rent for the winter and not burden anyone with any real estate issues when we resume room temperature.

 

[gerntz]

The concept of going to the same place for vacation over & over doesn't appeal. Feels like Ground Hog Day.