Toddtheformeraccountant
Recycles dryer sheets
Issue: Buying a vacation home vs. just staying at hotels. Obviously it depends upon how often you stay at the vacation home....but the longer you stay at the vacation home, the more it's really a home home and not a vacation home.
Without an analysis, intuitively you would have to know that the value of a vacation home purchase is directly proportional to the amount of time you plan on spending in it...duh...but this kind of calculates that breakeven point. Qualitatively hotel gives you more flexibility...go wherever you want...where with your vacation home you're stuck going there or you lose the value.
So I geeked out and did a little math, saying, hey, what's the breakeven point in terms of number of nights renting a hotel for a 20 year period vs. buying a vacation home.
Here's the scenario:
Compare buying a home for $650,000, paying the property taxes and paying the expenses, as compared to just investing the $650,000 and then paying for a hotel.
Assuming a) property taxes are 1.25% of value and go up 1% (we're in California), b) expenses of vacation home are about $4,300 a year, c) we earn 4% annualized net of tax return (fairly modest, frankly), d) the cost of a hotel room is $250 per night and e) the hotel cost, vacation home value, expenses, increase at 3% per year....all for a 20 year hold, selling the vacation home in year 20...
the breakeven number of nights per year we could rent a hotel room and not spend the money vs. buying the vacation home is 75. Meaning, we could just invest the money, pay for a hotel room for 75 nights a year, and be equal to buying the vacation home.
I've made some simplifying assumptions of course....but hey I'm just a humble beancounter, not a rocket scientist. I also assumed that it wasn't rented out at all....I personally wouldn't rent a $650,000 place out to strangers for sure, I think the risk of someone destroying the place is too high. Maybe I'm too conservative.
Any holes that anybody sees in my analysis? I attached it in case anybody is bored and wants to see the spreadsheet.
Obviously a million other qualitative factors we could discuss.
UPDATE: Thank you all for your replies and I think I'm realizing that I'm looking at this as a beancounter rather than a human. It's not just dollars/cents it is the utility and lifestyle benefit of a place. Thank you for teaching me to not think like a beancounter!!!!
Without an analysis, intuitively you would have to know that the value of a vacation home purchase is directly proportional to the amount of time you plan on spending in it...duh...but this kind of calculates that breakeven point. Qualitatively hotel gives you more flexibility...go wherever you want...where with your vacation home you're stuck going there or you lose the value.
So I geeked out and did a little math, saying, hey, what's the breakeven point in terms of number of nights renting a hotel for a 20 year period vs. buying a vacation home.
Here's the scenario:
Compare buying a home for $650,000, paying the property taxes and paying the expenses, as compared to just investing the $650,000 and then paying for a hotel.
Assuming a) property taxes are 1.25% of value and go up 1% (we're in California), b) expenses of vacation home are about $4,300 a year, c) we earn 4% annualized net of tax return (fairly modest, frankly), d) the cost of a hotel room is $250 per night and e) the hotel cost, vacation home value, expenses, increase at 3% per year....all for a 20 year hold, selling the vacation home in year 20...
the breakeven number of nights per year we could rent a hotel room and not spend the money vs. buying the vacation home is 75. Meaning, we could just invest the money, pay for a hotel room for 75 nights a year, and be equal to buying the vacation home.
I've made some simplifying assumptions of course....but hey I'm just a humble beancounter, not a rocket scientist. I also assumed that it wasn't rented out at all....I personally wouldn't rent a $650,000 place out to strangers for sure, I think the risk of someone destroying the place is too high. Maybe I'm too conservative.
Any holes that anybody sees in my analysis? I attached it in case anybody is bored and wants to see the spreadsheet.
Obviously a million other qualitative factors we could discuss.
UPDATE: Thank you all for your replies and I think I'm realizing that I'm looking at this as a beancounter rather than a human. It's not just dollars/cents it is the utility and lifestyle benefit of a place. Thank you for teaching me to not think like a beancounter!!!!
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