What's the point of a vacation home?

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What's the point of a vacation  home?

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I'm going to answer your question with a joke.Dreamers build castles in the sky. Optimists live in them. Realists collect the rent.

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I live in a coastal market and there’s quite a few reasons. Typically the gross rental income at least where I’m at is 10 years = sales price. Not always but roughly. So if you’re bringing in 128k a year look to see $1,280,000 sales price. Once again this is not a hard and fast rule. With that said most of my vacation homeowners are making enough to pay the mortgage and usually much more. Even after the 25% for the management company. Is it the best investment? Just all depends. The other pros that I happen to see from my clients are this: 1) It’s still a vacation home as well. Not only does the mortgage get paid of but they can reserve a couple of weeks here and there and instead of dropping $20,000 in vacations per year, they just go to the house. They’ll do more winter trips but maybe a summer trip or two as well. 2) Repair costs. So for my 1.2m example. You’re a doctor, lawyer, business owner etc. Your not trying to become a slumlord or go through the hassle of tracking down great deals. They don’t want to purchase 10 properties and constantly be dealing with property management trying to squeeze out profits or manage flips. You buy one house. You enjoy the house yourself. It pays itself off. I can think of one where they purchased a short sale 12 bedroom for 680k in 2010 and now that properties worth around 1.2m - it’s already paid off, brings in around 80k a year and that’s just for the weeks that they don’t want to go there.

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Vacation homes are a lifestyle choice, a luxury. They are also a major amount of work, owning two homes, and something that is purely a emotional choice not a logical choice.Definatly not economical ... very expensive. Ask me how I know.....That's right I have one but it is not for rent. Personal/family only.

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People with money enjoy having a place to get away to. If they live in the city they often want a weekend place at the beach, the lake, or the mountains. Depending on their finances they may not need to rent it out, which allows them to use it anytime they choose and also leave their personal things in it and not worry about them. Vacation homes are often in special locations that can appreciate more than average, because of the limited availability of a feature such as being on the water or having a 50-mile view. A lake or beach house probably won't appreciate as well as index funds, but they are much better investments than boats and RVs. They are also great for making memories and passing down over generations. As rentals their demand is usually seasonal, which can work for or against you depending on your needs. If you like the beach, but like to avoid the vacation crowds, renting it out during the peak season works perfectly for maximizing income. If you by a ski cabin, but don't like the cold Winters, rent it to the skiers, then you can enjoy the other seasons.

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In all reality, not every vacation home is underwater. Much like anything in real estate the numbers depend on how you purchase it (i.e. with using it for yourself as primary driver, or making money as a primary driver). If you’re looking to supplement the cost of ownership, but are buying for yourself maybe in all reality covering the mortgage is good enough for you. However, there are plenty of examples of properties that cashflow as a vacation home that more than make up for the expense (plus the added benefit of your use). As you’re referring to downpayment of $50k, my vacation property cost me less than that - in total, no mortgage. So much like regular rentals, it depends on what kind of property you are purchasing (I.e. appreciation, cashflow).

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Oh, and having a second home can come in handy when you're not getting along with your mate. ;)I've seen more than one husband end up living in the vacation home instead of the doghouse!

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People are looking for ways to write off their vacations as a business expense. They write off plane tickets, meals and have a place to stay for free.Even if the property loses some money, it is probably offsetting other rental income. Most likely the value is increasing and you are paying down the mortgage. It may not be the best investment, but when you figure in free vacations, appreciation and tax savings, it may not be the worst choice.

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It’s not about making money for everyone. That being said for some it is and not all vacation homes are bad investments. I short-term rent mine and my worst one pays for itself then makes an extra $5-$6k/yr. Worst performing from a cash flow standpoint but not bad and it’s the one most used by myself and family. Others cash flow much better than that.

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Sorry about the post above. It was meant for another thread.

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Instead of using AirDNA and the like, I recommend that you do your own analysis. I don't find those services being very accurate. Each time I do an analysis of a short term rental vacation home, I will go to HomeAway/VRBO, Airbnb, and FlipKey and look at the rates and calendars of similar homes currently being rented in the vacation home community where the vacation home is located that I am analyzing. I especially focus on the vacation homes that are doing well and analyze why they are doing better than many of the other homes in the community. Photos often tell me why. Homes with new furnishings, modern kitchens, themed kids bedrooms, and fun amenities like game rooms and movie theaters always rent the most with the highest nightly rates.