Vacation Homes = Winning!
We all know that owning a home is a great investment, right? It’s been well-documented (as shown in the National Association of Realtors graph below) that homeownership provides large financial gains for families over time.
So why wouldn’t owning two homes be an even better investment? The short answer is that it definitely can be. But, there are some big considerations that have to be well thought out in order to ensure that it is in fact the best investment for you and your family.
- Initial Investment. This is number one, because if you run the numbers and supporting another house isn’t affordable and/or isn’t financially comfortable, then there’s no need to consider other factors! A good place to start your research is with a mortgage professional. They can tell you whether your debt-to-income ratio works, how much you can spend on a second home, how much money you’d need to put down, and what your what mortgage estimate would be.
- On-Going Investment. Another affordability factor is how much needs to be set aside each month or year to maintain a second home. The money advice website NerdWallet.com reports that “A good rule of thumb for maintenance expenses is to set aside 1.5% to 2% of the home’s value each year for repairs.” So, be ready to add that amount to the 12-month mortgage amount for a benchmark of annual expenses for a vacation home.
- Location, Location, Location. None of us have ever heard that one before, right?? Ha! Well, that old adage very much applies to vacation homes as well. Do you have to have your vacation home right on the water, or are you ok walking a few blocks to get to the water? How much more house can you buy in this area versus that one? How far are you willing to drive to get there to enjoy a weekend, or are you ok buying further away from your primary home because you’re planning to spend at least a week at a time there?
- Knock, Knock, Who’s There? If you are buying it just for you or your family and you aren’t planning to rent it out as an Airbnb (or similar-type) property, then there are two more considerations. One, how much money and for what percentage of time can you expect to rent your vacation home out for? Two, how does the price and the location of the home impact the rental in terms of price you could charge and demand you could expect?
The bottom line is that homeownership builds wealth. So, buying a second home is a great thing in so many ways, including building MORE wealth! As one investment expert says “If done correctly, these investments will help you grow your income safely over time, and they’ll also produce recurring monthly cash flow.” Plus, you can have a spot to enjoy vacation time, and if you rent it out, you can have others pay for your asset. There are so many areas you can consider for a vacation home, including nearby lakes, small Texas towns, and multi-acreage getaways. Give me a shout and let’s discuss the pros and cons!