A Second Vacation Home a Good Thing?

[W2R]

Quote:

Originally Posted by Midpack One of my employees just retired, we're in NW Indiana near Chicago. His house was on the market at $140K for 2 years without a single offer despite a brand new roof and few other costly fixes. Then about a month ago someone stepped up and offered $110K, but he had to be out in 30 days. He was disappointed, but he took it, and his last day was Monday. But he took a $30K bath selling the home he lived in for over 30 years...it is a good time to buy real estate in most places, not that the buyers market won't last a while.

So true! But the reverse side of that coin is that once one buys such a home, it is nearly impossible to get rid of it. So, for example, if I bought a house in Springfield then I would be stuck with it even if my plans changed for some unexpected reason.

Decisions, decisions. Right now I am thinking of waiting at least until Frank and I both have our houses all fixed up and on the market, and we can both move up there. We could rent unless this (or another) great opportunity presents itself. I really hate the idea of owning two homes in two different states, though, and the real estate market here isn't all that great, either.

[traineeinvestor]

As an expatriate, I intend to continue living in Hong Kong after I retire but spend 2-3 months a year in my old home country. I looked at buying a house v invest and renting apartments for the 2-3 months I would be back home. The numbers obviously depend on expected rates of return on the investments, cost of the property at time of purchase and a number of other variables, but even with a conservative ROI assumption of 4%, the property would have to appreciate at around 2.4 % pa to break even. If the investments did better than 4%, the ROI would need to be higher.

Add in the loss of flexibility, the time needed to sort out maintenance and the implied cost if I spend less time there in any given year and it ended up being a no-brainer to go with renting.

While I do know some people who purchased holiday homes in Thailand during the Asian crisis (significant capital appreciation and significant currency appreciation), most people I know who buy holiday homes spend a lot of time complaining about the bills.

[Meadbh]

By definition, a vacation home is used only part of the time. If it's an ER home, then it's not a vacation home. All the evidence suggests that owning a second property that sits idle is a money pit. If it's rented long term, you can't go there on vacation. If it's rented short term, you need to keep investing the time to market it, in addition to the extra wear and tear.

IMHO the only cost effective way to own a vacation property is to own a fraction of it. The fraction should be no more than you expect to use yourself. Don't see it as a financial investment, just a lifestyle choice. That's what I do, and I have no money pit, but I save thousands of dollars annually on what would otherwise be expensive accommodation. I am always amused by the other fractional owners at my resort who own several fractions of several homes and are surprised that they are not making money.

I repeat, a vacation home is a lifestyle choice. Period. And that can be a very good thing!

[audreyh1]

I vote for a rolling condo! (RV)

It's wonderful taking our "home" to various places across the country.

Also, having an RV makes it easier to relocate in general as you can spend time in an area to thoroughly check it out, and have something to live in between houses.

Audrey

[jimnjana]

Quote:

Originally Posted by Meadbh By definition, a vacation home is used only part of the time. If it's an ER home, then it's not a vacation home. All the evidence suggests that owning a second property that sits idle is a money pit. If it's rented long term, you can't go there on vacation. If it's rented short term, you need to keep investing the time to market it, in addition to the extra wear and tear. IMHO the only cost effective way to own a vacation property is to own a fraction of it. The fraction should be no more than you expect to use yourself. Don't see it as a financial investment, just a lifestyle choice. That's what I do, and I have no money pit, but I save thousands of dollars annually on what would otherwise be expensive accommodation. I am always amused by the other fractional owners at my resort who own several fractions of several homes and are surprised that they are not making money. I repeat, a vacation home is a lifestyle choice. Period. And that can be a very good thing!

2nd home a Money Pit? Not everyone feels that way. Just as some people find they can't afford a time share, some people can't afford a 2nd home. For many people a vacation home or 2nd home is a life style choice that is well worth the cost.

Jim

[Meadbh]

Quote:

Originally Posted by jimnjana 2nd home a Money Pit? Not everyone feels that way. Just as some people find they can't afford a time share, some people can't afford a 2nd home. For many people a vacation home or 2nd home is a life style choice that is well worth the cost. Jim

I didn't say that all second homes are money pits. I said that second homes that sit idle are money pits. And of course, some people are happy to own a money pit. But you can't own a money pit and be LBYM at the same time.

[jimnjana]

Quote:

Originally Posted by Meadbh I didn't say that all second homes are money pits. I said that second homes that sit idle are money pits. And of course, some people are happy to own a money pit. But you can't own a money pit and be LBYM at the same time.

Well, I disagree with that as well. We made a decision not to rent seasonally rent/short term rent our 2nd home after we converted a long time rental property. We don't feel we are throwing money away by taking care of the home. We enjoy the time we spend there and it is worth it to us, it is our choice. Could we be doing something else with the money we spend on our 2nd home? Sure, but we don't want to. At least not at this point in our life.

[Brat]

We have owned a vacation home in Sunriver, OR and after that a time-share in Jackson Hole.

Owning a vacation home ties you very tight to one location, owning a time share even in a trading pool is not a money saving venture. Sunriver may be unique in that there is a very strong all season rental demand. Except when the national economy is the pits resales are strong. Frankly, if you can't pay cash for a vacation home you can't aford it.

My advise is to find a vacation house you love to rent and develop a relationship with the owner. Use it regularly. All the advantages of ownership with none of the risks.

I have friends who have gone together to buy a vacation house. My concern is how to unravel those arrangements when it is time to move on.

[LOL!]

I like vacation homes quite a lot. But I don't own them. My siblings own them and I get to use them. I guess I developed a relationship with the owners.

[kcowan]

There is a big difference between a vacation home as a rental investment and a second home that you use regularly in retirement. I think the OP was talking about the latter. I would say to run the numbers and do what makes sense economically.

Often you can make a deal with an owner on VRBO who has a property as an investment and become a regular seasonal renter for them. This can be the best of both worlds if you find the right owner who will subsidize your seasonal rental.

Anything else is a lifestyle expense.

[Danmar]

I agree with Meadbh-it's a lifestyle choice. We own 3 homes and spent about equal times at each last year:97/104/106 days for each. Not sure which ones would be classed as the vacation homes as we love them all. Obviously this can get pretty expensive. We don't have mortgages on any of them and I would think a vacation home should not be highly levered with debt. We don't rent any of them out although we are generous in lending them to close friends and family. If you think this would be an investment think again. These places are very illiquid. However, the feeling of arriving at a different home with your clothes in the closet and your car in the garage is worth the expense IMHO. Advice: go for it if you can afford it.

[kcowan]

Danmar, are you looking to make any new friends?

[Kroeran]

My rule would be you can't afford it if you are not buying cash.

If you have the cash, it can be a very efficient way to cut out a lot of middle men and the tax man.

The direction I am going in is to think in terms of turning investments into assets you directly use, and this applies to everything.

Lets say you have an extra 200K invested above income requirements. Maybe you will make 5% on that over time, or you may lose it to fraud, or bad emotional control, or just bad luck, then if you do make money, give half to the tax man. What sort of vacation can you buy with the left over money?

Alternatively, put the 200k into a second home. You can rent for 2 weeks without reporting it to the IRS (legally). No matter what happens to the economy, you will have that place to go to. If you own it to use it, you don't care what it is worth.

Another thing, if you own a condo in a gated community in the south, you are very likely to get to know your neighbours, and have a built in social life, which is important when you are sitting in a strange town for a few weeks or months.

lending the second home to friends and family creates a strong bond and builds group cohesion

also, you have to spend your money on something

of course, rent before you buy, attend an HOA

meeting before you buy

if you venture beyond the southern border, monthy expenses may be greatly reduced. the are other issues of course

[landover]

Here is an interesting thread "what-can-i-buy-in-the-hills-for-5-lakhs" about buying a piece on land in Himalayas to escape from Indian summer. This may be little off topic but interesting. I think it would cost around 10 lakhs to construct a basic house on this location. Well one lakh is 100,000 and currency coversion rate is $1=46Rupee, so total cost will be around $30K, land only for $10k.

I am thinking of getting into it but buying land, land use conversion, construction will be big headache, getting water supply, then to secure the property when no one is living there. Good medical care is also 4-8 hours away. Anyway interesting temptation.

[Coloradoblonde]

Quote:

Originally Posted by check6 I own one in AZ, the other in MN and follow the season. The rentals I have done have always seemed cold and uninviting. Fantanstic deals here in southern AZ. Ck 6

I love Arizona and was wondering where there are good deals and can you give any examples of prices?

I live in Colorado full time, but have a vacation home and rental in Playa del Carmen, Mexico. The place has appreciated quite a bit during my 12 years of ownership and I've been able to make some money renting it out during those years as well. I wish I had a chance to get down to my vacation home more often, I probably only get down there 2 weeks a year. And it seems like there is more orchestration of new decorating, painting and buying a new ceiling fan when we are down there, so it's not always a "vacation".

So there are pros and cons to 2nd home ownership. My suggestion would be to wait till you really do have time to seriously use a vacation home before you buy. In the meantime, be a happy vacation renter and check out places that you might one day retire or own a 2nd home.

[Kroeran]

good advice. We only bought because we are a couple of years away from retirement...and prices and the exchange rate were very favorable.

it would not have made sense if we were younger for the two or three weeks we could get away

while we are in Fort Myers, which has a limited "season", a younger collegue bought in Orlando near the parks, which has a more vibrant short term rental market.

indeed, most of our visits so far have involved extensive shopping and installations, but as I am still in workaholic mode, I find it relaxing to have tasks, at least for the first week of vacation

now that the place is pretty much finished, maybe I will have time to take bocci ball lessons next time down there!

[Coloradoblonde]

Kroeran, Fort Myers sound pretty darn awesome about now as the Colorado winter lingers on...

Yes, even thougth I will probably ER this year, I will still have two boys to finish raising so we will probably still be only to go down to our vacation home for a month in the summer (which is when it's a tad HOT and yet the Colorado summers are ideal).

Anyway, I have been dreaming of having my life but "Living LITE" rather than a life so complex and full that you can't even see straight. I think that ER will provide me that.l

[Kroeran]

another option is renting on an annual lease. This permits you to have many advantages of owning, without the risk and hassles. You can put your own furniture in the place and call the landlord if there are any problems, and walk away if the HOA blows up.

sometimes the cost of an annual lease is not far from the cost of renting furnished for a few months of the high season. Where I am, some people are renting for less than the cost of the taxes and HOA.

while renting, at some point you will become aware of an ideal unit in an ideal location, that the owner needs to unload fast in the off season...and that is when you buy.

[Danmar]

Kroeran-You make many good points. I think a key one is if you can't pay cash you probably can't afford it.

[Kroeran]

I have had many and lengthy discussions about this with SWF people.

In my neighbourhood, I am increasingly seeing multi-millionaires giving up the 4 acre 5k+ sq ft houses and stepping down to our little 1.8k sq ft townhouses as a lifestyle decision, chosing simplicity over ego and wanting the social intensity.

and this



google paseo fort myers if you are interested

persons with limited funds are opting for renting mobile homes a block from the beach, which is doable for very low dollars.

for limited income people, one key with Florida is to keep your financial footprint low enough so that you don't get dinged with the confiscatory property tax on non-resident owned property above $100k. ...or become a resident and get inside the tent peeing out, rather than being outside of the tent and getting peed on!