Posted about 8 years ago

Are Vacation Homes Good Investments?

It really all depends on how you look at it. Financially, most vacation homes are probably a train wreck. I’ve had one for about 10 years and to be totally honest I’ve never made enough cash flow to cover my mortgage. And I get the fact that there are folks out there who do cashflow (maybe they inherited the place or have enough time to highly concentrate marketing towards it) but for me it’s been challenging to get the numbers to work. Vacation homes are an emotional investment, not a logical one.

The first and one of the biggest issues for me has been wear and tear on my mountain chalet. You have to have nice furnishings to command decent rent, but the catch 22 is that the more you rent it (to try and break even) the more wear and tear on your contents and occasionally the joint gets trashed. Even when I had donated vacation time to charities, the properties would still get beat up. It’s a high touch, high turnover business model. I know how hard it is to find a tenant for a year, imagine doing that for every week. I can’t! Which is probably why I stopped renting it out.

And these are just the problems of when it’s in season, what about the off-season? There’s ZERO cashflow! Keep in mind, this is a house in the mountains where plenty of people kill for a place in the winter during ski season, and during the summer there is a good amount of people who just want to enjoy the fresh air. This was one of the reasons I bought the house, because I couldn’t fathom what to do with a place at the beach during the winter.

But it isn’t all bad. One of the few instances where it seems to makes sense is if you need depreciation. Like say if you make a few hundred grand a year and want a nice beach or mountain home, why not! But I have plenty of other properties, all technically depreciating. And I’m making a ton of cashflow and it’s appreciating just the same as vacation homes (and generally with less of the upswings and downturns). And let’s not forget aside from cashflow and appreciation, the next thing you think about when buying a property is tax advantages. If you treat your vacation home as a vacation home (or at least call it that), it’s generally considered owner occupied in the eyes of the IRS. Because of this, it is considered to be an arm of your primary residence and you normally can’t depreciate your primary residence. So with all this money I sink into a vacation home, I could travel once a month to some of the best places around the world. Not to mention, I’m obligated to go to the home! So what’s better a vacation home in New Jersey with constant upkeep and worry, or a nice vacation to Europe or Asia once a month?

All that being said, I still enjoy my vacation home immensely; I even do a lot of my writing there! So I can’t knock it too much but for me, it only seems to really work because the cash flow from all the other normal rentals and notes pay for it. So, if you want to throw a vacation home into the mix you just have to look at your portfolio as a whole. I’ll be honest, I’m much happier not renting it out. I’m also happier with a cleaning service and someone doing the lawn. After all who wants to work on vacation!