Does it make sense to buy a vacation home

Question

My husband and I live in Chicago but want to buy an inexpensive vacation condo in Miami or Fort Lauderdale for about 150,000. We own our primary residence in Chicago which is paid for. Does it make sense to buy a second home if we will only visit Florida maybe 4 times in the year? We could pay off the home in 3 years but it will always be HOA and taxes which will be a monthly expense.  We are thinking about possibly renting the place during the summer months but will we find someone to just rent 6 months out of the year down there? Should we not buy our vacation home. Help if you can we need to know what to do!!!  :D

Jon Holdman · Answer

Does in make sense in what sense?

Financially vs. renting a hotel of condo?  Unlikely.  But straightforward to do the math.  Just be sure to account for ALL your costs.

As a speculative investment?  Who knows.  I wouldn't care to bet on it, but its possible we'll see dramatic appreciation that would make you a nice return.

As a rental that you rent for six months out of the year?  Very unlikely.  I have to think it will be hard to find tenants that will rent for six months at a whack, especially during the low season.  You might try it as a nightly rental.  But even then, check out VRBO and get an idea of the rates. My test is to try to find something just a week or two out.  If you can, that's a clue vacancies are high.  Be sure you know what restrictions the HOA has on rentals, know the cost of property management, and are aware of the cost of landlord insurance.

As an expensive doo-dad that is enjoyable and doesn't impact you financially?  Sure.  I've owned a weekend house before and greatly enjoyed it.  I paid $21K for it in the early 90's and sold it in 95 after moving too far away to use it for $24K plus half a septic system.  But we thoroughly enjoyed it and used it a lot while we owned it.  I own a house next to my mother-in-law's house.  We paid all of $11K for it (rural MO, bought from her after she bought it from the sheriff).  Is it cost effective vs. a hotel room?  Not a chance.  Does it make my wife happy?  Very much so.  So it makes perfect sense.

Vikram C. · Answer

Ayanna, if you wish to do short-term rentals, you can look into vrbo.com.  (Vacation rentals by owner.)  I used it this past summer and got a beautiful place in San Francisco for a couple of months.  They have a nice "reservation" tool that allows you to make the whole thing as painless as possible.  But it does help to have someone local, such as a property manager, who can collect the keys at the end of the rental, etc.

You can also try homeexchange.com if you wish to swap homes with others.  You can find beautiful mansions in the south of France and exchange it for your condo in Miami, for example.  Yes, people are willing to do such deals!

BTW, I am not suggesting that the condo is a good investment.  I am just giving you ideas to maximize your value from it.

Jon Klaus · Answer

An alternative approach.  Invest your $150K on an income property locally.  Done right you can net 10% NOI, and if you really buy and manage well, you can get 20% NOI.  Perhaps not locally, though.

Let's say you net 15% or, $22,500 on your $150K.  Use that $22,500 to take 4 vacations wherever you want each year.  Chances are you will be able to rent much nicer places than the $150K condo you could buy.  Or take longer/more vacations.  Or reinvest some of the income.  Or....

Sylvia Guarino · Answer

My husband and I own two vacation rental properties on Sanibel Island, Florida as well as several annual rental properties in SW Florida.  We have sold off other vacation rental homes in other parts of Florida because, though lovely, they were not profitable.
          
          Both Miami and Fort Lauderdale are popular vacation destinations so I would guess that if you buy right, price right and market right, you will do ok in this bad economy and better when the economy improves.
          
          We market our vacation rentals in a number of ways, most recently listing on Second Porch, a Facebook application that helps us to get some inkling of the people who are inquiring.
          
          I also use Second Porch and other home exchange sites to swap the properties for other vacation homes.
          
          Having a vacation rental is not passive, but it can be fun and profitable and offer opportunities for travel you may not have in other ways.
          
          Best of luck!
          
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Rich Weese · Answer

I would worry about condos in FL right now. A lot of HOAs are in trouble and all the owners pay for it.

VRBO- great site- I use it for my condos in Cancun #10796 if you want to see an example. You can buy condos there currently for less than florida, and they rent for a LOT more. There are also some other bennies to earning funds foreighn.....

If you are going to use the condo a small amount and want it to be a real investment, then get one where people rent. I've had at least one in cancun for over 35 years. Rich in Fl.
 p.s. I'll be in cancun monday for 4 days. Anyone want to come visit?

Account Closed · Answer

If you can afford to have a vacation home, why not?  It may cost more than a hotel, but it is nice to have your own things and sleep in your own bed at night.
          
          As an investment? Not so much.
          
          It appears to be a very good time to buy in Florida.  Would you be looking for a place you could eventually retire in?
          
          Condos might be difficult for vacation rentals. The HOA can make things difficult if they allow rentals, and some don't permit rentals. 
          
          Condo HOA's that permit vacation rentals might have problems with re-sale value, because home owners don't want to live where there are constant parties going on around them with different neighbors every week. Also, there are maintenance issues with tenants, so maintenance costs (HOA fees) will be higher, or else the building will show wear more quickly.

Timothy W. · Answer

Ayanna,
If it were me I'd use the hospitality system and let someone else worry about the property the rest of the year.  Florida is clearly vacation time for you.  Keep it that way.

Tim

Rich Weese · Answer

Jon  K- You forgot to include the rental income from the vacation home... I;ve averaged 35-45K per condo per year for last 10-20 years. And, other than airfare, all my trips are free to cancun. In fact, going there monday for 4 days. Rich

Eddie Ziv · Answer

Every time you buy a property for yourself, the rules of the game are different from buying it for investment purpose only. (For instance, I for one, wouldn't live in any of my investment properties, unless I lost all my money and I don't have any other place to live... :lol: ). Now, also you may want to check with your accountant because second homes are treated differently by the IRS from investment properties. The only different would be if you rent it or not.

Jon Klaus · Answer

And you could turbo charge the above plan with the judicious use of leverage.

Does it make sense to buy a vacation home

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