Is a Vacation Home Really an Investment?

By Jeremy Wallace and Andrew Hart

Owning a home is a big part of the American dream. But owning a vacation home? That’s next level! After all, what could be better than having an escape ready and waiting at a moment’s notice? You may dream about owning a second property to get away from the daily grind—even for just a few days—but buying a vacation property is a significant decision. If you want this daydream to become a reality, you must first consider if this is truly a good investment for you and your family.

There isn’t a one-size-fits-all answer to this question because everyone’s circumstances are unique. So before you make this big commitment, consider the following to help determine if buying a vacation home is the right decision.

Questions to Ask Yourself Before Buying a Vacation Home

We hope these three questions will help guide your decision-making process:

Question 1: Does Owning a Vacation Home Make Sense With Your Lifestyle?

If you typically work 60+ hours a week with little time off, a vacation home may not be for you. If you typically like to visit a new city or country each time you travel, a vacation home may not be for you. If your ideal vacation consists of all-inclusive resorts and unlimited pampering, a vacation home may not be for you.

Think about how you like to travel—and how often you can do it—then decide if a vacation home makes sense. 

Question 2: Can You Afford a Vacation Home and the Ongoing Expenses That Come With It?

Even if you can pay cash for a vacation home, there are plenty of other expenses to watch out for: property taxes, homeowner association or condo fees, insurance, utilities, maintenance, etc. Some of these costs can be hard to estimate beforehand, and even if you plan to rent it out to help offset costs, you may not know how long it would sit vacant. 

Question 3: What Will You Do With it When You’re Not Using It?

Some people plan to rent their vacation homes out when it’s not in use. Others prefer to keep it all to themselves. There’s no wrong answer but know that what you plan on doing with your vacation home can impact the deductions and credits you qualify for come tax time.

Pros of Owning a Vacation Home

Now that you’ve clarified your situation a bit, here are five reasons why you may want to invest in a vacation home: 

  1. You could potentially generate rental income. The biggest advantage of owning a vacation home is that you can rent it out with a local company or on Airbnb or VRBO for extra cash assuming it is in a desirable area.
  2. It could appreciate in value. If you buy the right home in the right location, it could potentially appreciate in value, increasing your personal net worth in return.
  3. There could be tax benefits. If you keep your vacation home for yourself, you may be able to deduct mortgage interest and property taxes when you file your return. If you rent it out, you may also be able to deduct maintenance, repair costs, marketing, and management fees. (1)
  4. You’ll have a fun place to gather with friends and family. Most people buy a vacation home because they want to make sweet memories with family and friends.
  5. It makes “getting away” convenient. A vacation home is just that: your home. You can leave clothes and essentials there, reducing the time and energy you need to spend packing up each time you want an escape. 

Cons of Owning a Vacation Home

The benefits of owning a vacation home are enticing, but there are also reasons why you may not want to do it: 

  1. It can get expensive quickly. It’s difficult to accurately project how much you’ll spend on your new home. Utilities, insurance, taxes, renovations, repair costs—these can all add more to your bottom line than anticipated. If you get a mortgage, typically rates are higher for investment properties. Additionally, insurance costs are higher for either being vacant during the year or if it is rented. And furnishing a second home means you’ll likely be purchasing duplicates of many items that you already own, store, maintain, and insure at your primary residence – everything from furniture, clothing, and jewelry, to cars, electronics, dog kennels, and kitchen gadgets.
  2. It could be a risky investment. There are risks associated with any investment, but vacation homes may be more susceptible to economic downturns and natural disasters.
  3. You may get tired of visiting the same place. Once you buy a vacation home, you may feel pressured to visit it any chance you get to help justify the cost. You may feel locked in and pass on an opportunity to visit someplace new.

Is Owning a Vacation Home a Good Investment? 

Whether or not owning a vacation home is a good investment depends on your unique financial situation. If you have a sizable down payment and can easily afford the additional expense, it may make sense for you. But if you’d need to tap into retirement savings or rent it out for part of the year to cover the cost, it might not. Like most financial decisions, only you can determine if owning a vacation home is a good investment and will align with your other financial goals.

Consult With a Professional

The idea of owning a vacation home can be powerful, which makes it difficult to think clearly when making a big decision like this. Purchasing a second home is not something to take lightly—no matter what your financial situation may be. One wise decision you can make as a first step is to lean on the help of an objective financial professional who can help you weigh the pros and cons of this investment.

At Wallace Hart Capital Management, our team can help evaluate your finances to determine if a vacation home makes sense for your particular situation. You may have many other decisions to make regarding your financial future, and we can help with those too. We would love to partner with you on your financial journey and help you reach your goals, big and small. To get started, contact us at 859.300.3030 or request an appointment online today!

About Jeremy

Jeremy Wallace is founder and chief investment officer at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Jeremy has 20 years of experience in the financial industry and is passionate about helping clients preserve and enhance their wealth so they can pursue their passions. Jeremy graduated from Emory University with a degree in international economics and a certificate in financial planning. Outside of the office, Jeremy spends most of his free time with his wife, Julie, and their three children, Isabel, Lincoln, and Reid. He is an avid Chicago Cubs baseball fan, and he enjoys golfing with his wife and traveling with his family. Learn more about Jeremy by connecting with him on LinkedIn.

About Andrew

Andrew Hart is co-founder and chief planning strategist at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Andrew has 15 years of experience in the financial industry and strives to provide new and better strategies and processes to improve his clients’ lives. Andrew graduated from Wittenberg University with a bachelor’s degree in business management and holds a certificate in financial planning from Georgetown University and the CERTIFIED FINANCIAL PLANNER™ certification. When he’s not working, you can find him enjoying the city of Lexington, Kentucky, teaching at the University of Kentucky’s Financial Planning program, and spending time with his wife, Susan, twin sons, George and Ted, and daughters, Merritt and Philippa. To learn more about Andrew, connect with him on LinkedIn.