My Opinion.
Over the last 15 years I have worked through the 2nd (vacation) home exercise 2 times. The latest one was just a few months ago... a popular beach area that is laden with foreclosures and short-sale houses/condos on or near the beach. With the real estate debacle, I thought that perhaps it might be a opportunity for us. There are some pretty good deals out there on short-sales. But I quickly realized that one cannot compare the current prices to the peak bubble price... those prices probably will not return for many many years. One should compare the price to a pre-bubble value. I would be comparing to something like the price in 2000 or maybe 2002. That short sale home may not look like such a great deal!! What I mean is it may not generate the windfall quick equity ownership increase some think might happen in a year or two. Bubble means they were grossly overvalued! Add to that all of the normal ongoing expenses plus the added expense of keeping it up when we are not there... I could not come up with a sure fire plan where it would make money or even come close to breaking even. But... I am conservative in these matters.
Before you make any decision to buy anything... you should identify your primary goal and your motivation. Separate the financial aspect of it from the dream/emotion aspect of it. This is key to making a good decision.
This is what goes on in many peoples' minds: Fulfill my vacation home dream (goal) need to do it now because of cheap prices (motivation)... it may be just that... a dream (goal) and not a reality (motivation)!
This was a likely common narrative a few years back: Fulfill my vacation home dream (goal) need to do it now because of I won't be able to afford it later, look at how the value keeps increasing.... hey! if it keeps going up it is almost FREEEEEEE (motivation)... What did it end up being?... A nightmare!
If I want to live in another location for a short period of time on a yearly basis (weeks or months)... That is my primary goal, not home ownership. Owning a 2nd home would be a personal preference that comes with a big price tag. I can fullfill my goal with a short-term lease for less money, lower risk, and more flexibility. I will leave the risk, headache, and dream to the actual vacation home owner! He should get the dream... he paid for it!
However, ownership is important to some people... and there could be special circumstances (needs) that require it. The financial perspective is much lower on their list of priorities. They look at it from a lifestyle perspective or have certain needs they want to fulfill... that is prefectly fine. But hopefully they went through the goal/motivation exercise.
Carefully think it through and get rid of the dream/emotion factors for a little bit. Look at it like an accountant. You can go back to dreaming once you have analyzed it.