Should You Buy or Rent a Vacation Home? Part I
Have you thought about buying a vacation home?
If you have, you’re not alone. Every year, I have dozens of discussions with Relaxing Retirement Coaching Program members about the prospect of buying a vacation home, especially during winters like we just experienced this year when it’s freezing…and snowing…and sleeting up here in New England, and warm down South and out West.
However, buying a second home on the Cape or Rhode Island, or up in New Hampshire, Vermont, or Maine is also extremely desirable.
The big question always centers around buying vs. renting. And, because there are so many factors involved, there is no correct ‘rule of thumb’ answer.
Since I just had this discussion with two of our members, I thought I’d share my comments with you about weighing the options of buying a second home vs. renting. There are numerous pros and cons to both, so let’s examine them.
For today, we’re going to focus on the advantages and disadvantage of buying. A bit later this month, we’ll tackle the pros and cons of renting so you can make a complete evaluation.
Questions To Ask Yourself
- The first big question you want to ask yourself is how many days in a year can you really see yourself being at the second home? If the answer is two weeks, you know which option you should choose.
- Do you have family members or friends who would take advantage of it and utilize it when you were not there? (Another justification for owning)
- How long can you see yourself owning it? How many more years can you see yourself traveling to this location on a regular basis? 5 years…10 years…20 years?
- Who will maintain the property while you’re not there? Is it part of a condominium complex where a service is available for the fee you pay?
- Lastly, are you going to rent it out while you’re not there? If so, do you want to be a long distance landlord? The big downside of this is that the time of the year you want to be there, i.e. winter months, is exactly when someone would want to rent it from you. There’s not much of a market for renters in Florida or Arizona in July!
Ditto for renters on the Cape in January and February!
Many times, if you take a step back and rationally answer these simple questions, you can determine the best option for yourself.
Advantages of Owning
- You expect to be in the second home for an absolute minimum of four months per year and want it to be “your” home
- Freedom and Control: You can come and go as you please with no limitations and leave belongings behind such as clothing and a car
- Family and friends can use it for their vacations while you’re not there, or you can host family and friends
- Locking in the price of a home, especially at depressed prices as we’re seeing throughout the country right now due to the credit crisis, especially in Florida, Arizona, and Las Vegas.
- Real estate appreciation: Although I don’t recommend treating it as an investment, owning an appreciating asset is always a plus (of course making the ‘assumption’ that your property will increase in value over time)
- Pride of ownership
Disadvantages of Owning
- Costs: you’re responsible for any condo fee, real estate taxes, insurance, utilities, maintenance, and upkeep
- Lack of control over rising real estate taxes: This has become a huge problem with second home buyers in Florida for whom this in not their primary residence. Unfortunately, you have no control over your town’s evaluation of your property. They have the power to increase your property taxes.
- Lack of control over rising condo fees (assuming for a moment that you live in a condo). The association controls this.
- Having to care and maintain the property from a long distance
- Being caught in a buyer’s market when you want or need to sell
Take a moment to write down your thoughts on each of these, and the questions above.
And, then tune in later this month as we tackle the advantages and disadvantages of renting a vacation home so you can make a truly informed decision that you can feel completely comfortable with.