How my friends got their vacation homes for free

There are basically 2 reasons why you would ever buy a vacation home (financially speaking).

Reason #1 is because you have money to burn (not too many people I know personally. Actually, even the ones who do own vacation homes probably shouldn't be owning them. But, that's another topic).

Reason #2 is to rent it out for cash flow.

My friends Tay and Ranya are a retired police couple who did well when it comes to personal finance and buying vacation homes. Yes, homes as in 2 vacation homes. Both are condos that they picked up after the last crash.

Great timing on their part. They had worked hard at their careers, had their financial house in order, and were able to take advantage of the low prices.

Their overseas condo is so cheap, and the maintenance so reasonable, that they don’t need to rent it out at all. It costs them a few hundred dollars a month, less than what most of us spend on eating out every month. And, relatives take care of it when they’re not vacationing there. So, no debate there. This is clearly a luxury that they can afford.

Their other condo is on the Florida coast. The ability to rent it out all year long makes it completely worthwhile (they call it a condo-hotel.  Apparently not too many around).  And, they still get to use it whenever they want. The best part of it is this: they basically got it for free! If you want to buy a vacation home that’s also a great investment, this would be it.

Let’s look at the approximate numbers:

It’s a 2-bedroom condo that was bought outright using home equity (It’s one of a very few reasons to use your home equity-to MAKE money). Their monthly expenses are about $1400 a month. But, they rent it out for $1400 a WEEK, all year round.

Don’t even bother with the calculator on this one. Don’t bother trying to figure out what kind of return they’re getting on their money. A home equity loan is money you borrow from the bank. So, it WASN’T THEIR MONEY!

If you put in $100,000 to buy a condo that makes you $20,000 a year in net profit, you’d be making a 20% return on your money (not including all the other perks of owning rental property).

What if you didn’t put in ANY of your own money and you still made $20,000 a year? Then it’s an infinite return. You basically made money out of thin air! They got a condo for free, and the condo is generating income for them! It’s even paying for the other condo! So, they got both condos for free.

(Don’t get all excited and go out and use your equity to buy a vacation condo right now. It’s still a loan. You still have to pay interest on it. You have to make sure that you’re making more money than what the bank is charging you, that your financial house is in order, that you can take a calculated risk, can pay it all back yourself if the place doesn’t rent out, etc.)

It was all possible because they were financially and mentally prepared to jump on the opportunities. They worked hard and paid off their house, leaving themselves with plenty of available home equity to use for investments such as these. They then educated themselves on their target real estate markets. The opportunity to buy cheap condos in Florida was available to anyone at the time. Even my wife and I had thought about it. But, my friends actually had the knowledge and the funds and were prepared to jump on it.

Conclusion:

There are basically 2 reasons to buy a vacation home. One is because you can clearly afford such a luxury. The other is because it makes you money. With the right education and preparation, you can basically get a vacation home (or 2) for free and even have it make money for you. It’s yet another example of how to use your home equity to make money