Should We Buy a Vacation Home?

Posted by Madison on April 30, 2010

Now that summer is almost here, and we’re scheduling our vacations for the summer, we have the itch to buy our own vacation house…. again. (This happens every summer). Every time we rent a place, my financial brain starts spinning.

What if we buy our own vacation house, and rent it out when we aren’t using it? Wouldn’t that be a better investment than renting a place each time we go on vacation?

Pros to Buying a Vacation Home

Making Memories with the Kids. I have fond memories of going to our family’s cabin as a kid. I’d love to do the same for my kids. Scott cut back to 3 days a week, so it would be easy for us to go on long weekends.

Rental Income. When we aren’t there, we could rent out the vacation home on VRBO or enroll in a rental program if we buy a place that belongs to one. I’m being realistic knowing that the rental income wouldn’t completely cover the costs of ownership, but hopefully, it would offset the cost of owning a vacation property. A little perk for second homes: you can rent it for up to 15 days per year, and the income is tax free!

Extra Tax Benefits. There are some extra tax deductions you can take on your vacation home depending on how many days per year you rent it. The IRS has different rules based on whether or not you use it more than 14 days or 10 percent of the time it was rented. See more on the vacation home tax rules.

An Investment? I would normally think of a 2nd home as a money pit, but I found an interesting calculation that estimated a yield equal to 9% per year after taxes if you use the property only 15 days and rent it for another 15 days (at $150 per day). I’ll have to run some of my own calculations, but this could actually be a decent investment, right?

Cons to Buying a Vacation Home

Work. Vacation homes quickly become work. You end up spending your vacation doing “work” at the house on maintenance and upkeep.

Furnishings. Once you buy the home, then you have to buy furnishings. Extra costs that you don’t put into the analysis will always creep in.

Guilt. Don’t forget the guilty feeling that you have when you don’t use it enough!

Boats. Of course, when you buy a home on a lake, then you want to buy a boat to go with it. One more thing we won’t use. I should know, I used to have a boat, which we used a lot at first…. then not very much. The summer before we sold it, we only used it twice. Although part of me thinks we’d use it more now with the kids.


We’re also caught up on the location. We’re considering a place “up north” which would be between 3-4 hours from here. Although, since it’s such a popular destination, the prices for a place with decent lake frontage are pretty expensive.

We’re also considering a place at Lake Cumberland, where we go each year with Scott’s family, but it’s pretty far from here, so we wouldn’t get as much use out of it. However, when we’re there, our kids would get to see their grandparents more. And it’s considerably cheaper than any of the properties around here.

Decisions, decisions….

What do you think? Should we buy a vacation home? What would you do?

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Comments to Should We Buy a Vacation Home?

  1. It seems to me that a vacation home would get old after awhile, just like a boat. If you want yearly visits to the same place for memories, you could lease the same place year after year and several times a year on weekends. The mainenance on a vacation home would seem like work to me. Vacations are for play and rest. I am one to like variety, so for me, I’d never buy a vacation home because I like to have different experiences on vacation every year. Some people like the idea of having “one” place that is theirs to escape. You will need to ask yourself which type of vacationer you are. If you are really strong in favor of having that “one” place to escape and build memories with the kids then buying would be worth it, otherwise not.


    • Excellent points to consider. Thanks Norman! Before kids we always liked variety and going to different places.

      Now with kids, we seem to keep going to the same place each year since we can vacation with the grandparents there.

      I’m going to have to put a lot of thought into which type of vacationer we are… I’m not actually sure.


  2. No, I wouldn’t buy one.

    As you probably know, it’s a lot easier to just grow your online business to cover costs than it is to throw a huge chunk of money at something that may never return your investment.

    When you can write a blog post and make a few hundred dollars, or send out an email to do the same, why not do that? It’s far less hassle. 🙂


    Erica Douglass

    • You’re right, it may never have any return on investment, but we would be able to vacation there, which is the underlying goal.


    • I don’t fully understand Erica’s comment. Don’t buy a vacation home because you can write a blog post and earn money? Huh? How about this… Grow your online business to the point where you can just go live on a lake. That way you don’t have to have a second home. You just live in the fun one. 🙂


      • LOL!
        Or you could do what’s best for you and your family and ignore people who think everything in the world has to have an ROI. And you could ignore people who have never had a lake home of their own.


  3. My wife’s parents had a beautiful cabin in Northern Wisconsin, and although we enjoyed it for many years, at some point it just became more work than it was worth. They ended up selling the cabin because they were just tired of all the maintenance – putting in the dock, taking it out, mowing, maintaining the house in and out -and dealing with emergencies like broken pipes when you’re 3 hours away. It was tough to get rid of, but I think they are able to relax more now when they go on vacation. 🙂


    • The maintenance and work, exactly as I remember it for my parents. Some people like it, some don’t. I think I’d rather relax. I’ll have to see what Scott thinks about it.

      Where in northern WI? My parents’ cabin is just north of Minocqua.


  4. I wouldn’t look at the vacation home from an investment standpoint only, but as more of a lifestyle issue. As long as you can comfortably afford the home and will make a lot of use of it, then go for it. If it’s possible to purchase a home that’s much closer to your residence then you will get a lot more use from your vacation home. On the other hand, if you expect to use it for only 2 weeks a year it probably doesn’t make much sense.

    Being that the real estate market is still low now, that is a plus. If you decide in 5 or 10 years to sell for whatever reason then I am pretty sure the house will be worth much more anyway.

    You won’t know if your decision is right or wrong until you actually make it. Assumptions have a habit of changing.

    Joseph B

    • Thanks for the thoughts Joseph. We’ll consider the closer one so we can use it more.

      And you’re right on about assumptions changing. We’d all like to think they stay the same…


      • We have a “vacation” home that we had built in 2004. We spend about 40+ weekends a year there and don’t rent it out. It is fully furnished so that we don’t have to bring much out to it each weekend (although we invariably do bring stuff every weekend).

        My comments – it doesn’t make economic sense to have it. We enjoy it. Also, the distance from your primary residence is key to getting sufficient use of it. Ours is within 2 hours’ drive. If you increase the distance to 3, 4 or more hours, your usage will go down sharply. Our house is in a lake commmunity and we notice a number of houses that are used infrequently. Sometimes people spend money to upgrade their house and hardly even come afterward. We rented in this community for 8 years off an on before we bought and built. We also waited until our kids were in college – when kids are Jr/Sr. high school age, they do not want to spend weekends with their parents and away from their friend. They may also have a lot of activities that will keep them from coming, too.

        Rich Berger

  5. I feel sorry for people who view everything in their lives based on the “return on investment.” If you can afford it and you think you’ll use it, and you’ll get enjoyment from it — go for it!


    • Thanks for the encouragement Ron! ROI sometimes does get in the way of doing things we want to do, just because we’d enjoy it. I’m guilty of it too.


  6. Too much work. And the less you use it the more work there is to do when you get there. 🙂

    As already mentioned it’s nice to be able to go to different areas as well which is easier if you are renting.

    Cottages also have a way of reducing all travel ie the year you go to Europe for 3 weeks weeks might mean that you barely use the cottage.

    My parents have a cottage but they were both teachers so they had lots of time off to use it. Plus we only lived 1 hour away so it was easy to go for a weekend.

    Unfortunately, I suspect this is the last year they will own it

    Mike 4P

    • Mike, why are they selling? Too much work?


  7. My $0.02 on vacation homes. First, I am speaking from experience, I have one that I rarely use (near Outer banks, N.C.)

    I have 2 major points of dissatisfaction with owning a vacation home. They become a hassle and lock you in.

    1. They become a hassle: The first 2 days of any vacation are spent in ‘maintenance mode’. Fixing minor stuff, tending to the yard, getting the water on, surveying the damage from hurricane what’s-her-name, etc. (I realize not everyone has a property on the coast but every terrain has it’s requisite hassles)

    2. The lock in: I am an explorer/adventurer by nature (so is my wife). We love to tread off the beaten path, experience new places. The kids love it although to be fair, we try to alternate between Disney-esque and off-the-beaten-path. We rarely do the same vacation 2 years in a row (but oddly enough, whenever we have a spectacular time the conversation turns to ‘maybe we should look for a place here?’). We just don’t want to be locked in to a single vacation choice. When you do choose differently your frugal brain pops in saying “What are you doing, the beach house is paid for!”. Vacation becomes obligation.

    Sometimes a vacation isn’t even a place. rent a couple of Harleys and head down rt.66. Rent an RV & camp your way to the Grand Canyon…or Yellowstone. (I heard they have the internets out there, too). Go to Greece, Kenya or the Galapagos. Bring the kids and grandparents along.

    For Lake Cumberland, why not rent a houseboat?
    We rented a pontoon and a HB on seperate occasions. We will never forget the experience.

    So, in summary. Ix-Nay on the vacation home. Own your investments but rent your fun.

    -btw, we’re selling the beach property.



    • Vacation becoming obligation. Ouch, that doesn’t sound as fun anymore.

      Although, I think you’re on to something here. Before kids, we used to love to vacation in Las Vegas. Everytime we went, we said, “we should buy a place here.”

      If we had, we probably wouldn’t be using it much now, but we’d feel like we had to since it was paid for.

      I’m really going to have to try to envision what type of vacations we’ll want to do when the kids get older. I bet they’re different than they are now.

      Thanks for your ‘been there, done that’ story. It helps put things in perspective.

      By the way, we usually rent a double-decker pontoon at Lake Cumberland… tons of fun!


  8. If it genuinely can become an investment that is awesome!

    What about splitting the cost with close friends or family, does that still give the tax breaks?

    If the money is available I would probably do it, kids love to have a 2nd home that is holiday but comfortably theirs.


    • Funny you mention the family. My mom actually called right after reading the article and said, we’ll rent it for a month in the winter.

      I had to break it to her that southern Kentucky is not warm like Arizona or Florida like she was envisioning.

      And yes, splitting it does provide some of the tax breaks, but the rules change slightly.


  9. My wife’s parents sold their RV and bought a lake cabin. They eventually retired there. Now that cabin is where all the children and grandchildren meet for holidays, where the grandkids bring friends, where we all associate “home.”

    That purchase was wonderful for our family.


  10. There will be better deals next year in real estate as the bult of Alt-A loans are set to reset the end of this year and in 2011. There will be a greater supply as people cannot pay.


    • Thanks for the reminder on the Alt-A loans. It will be interesting to see what the resets do to real estate in the next couple years.


  11. As a second home owner in a vacation area I thought I’d let you know that furnishings usually convey with the house. I suppose it depends on the market, but when we bought our house in North Carolina it came with every bed, dresser, desk, chair, table, etc… even the artwork.

    One Frugal Girl

    • Good to know! I would have never thought of that. But as we’re looking, apparently that’s true in the markets here too.


  12. Suggestion: buy a timeshare unit, either at a resort you like to go to, or a resort that you think other timeshare owners would like to go to (so that you can trade your week for something else).

    You’re not tied down to one place, you don’t do the maintenance (but you pay fees).

    BUT: Don’t buy new from the developer! Used timeshare units sell for 40-60% of the price the resort developer is asking. Read the fine print (resale units may not always have the same privileges) and save a bundle!


    • Wow. 40-60%? I knew timeshares depreciated, but that’s unreal.


      • They don’t really depreciate. It’s just that the resale market trades at a substantial discount compared to buying new from the developer.

        If you buy a unit on resale and hold it for a few years, you can likely sell it for more than you bought for.


  13. I recommend buying a vacation home in one of the hard hit states. Try Arizona!

    Smarter Spend

    • If we were closer, I might just do that! As mentioned earlier, my mom would love it.

      Although owning a place there would mean we would rarely use it…

      But your point is great, I’m going to do some looking into any areas closer to us that may have suffered some of the same issues.


  14. Anyone who doesn’t take at least think about “return on investment” is likely to make a lot of poor choices.

    We did this 3 years ago… bought a cottage on a lake. We’d been thinking about it for a while, but the cost and resulting delay in retirement horizon was stopping us.

    We stumbled across a deal that was quite good, and ended up taking the plunge. The theory was we got a good enough deal on it that we can sell it within a couple of years if we discover its not for us, and the net cost will be minimal, if anything. And then we’d know.

    I will say its been great. It nice to get away to another place that feels like “home” but isn’t in the city. Not living out of suitcases like other vacations is a real plus. In fact, I don’t take *anything* except food when we go. I have sets of clothes and everything already there, so very little packing to be done. And if you had a bad week, you can just pick up and go with very little thought or cost to get away.

    As for the extra work people complain about, we’ve found that we actually *want* small jobs to do around the place. There is only so much laying around relaxing, drinking, and kayaking one can do before it becomes tedious 🙂 Besides, we’ve found there are precious few urgent jobs that need doing. Most jobs can be put off until you actually feel like it, be it a week, a month or even years… After all, it *is* just a cottage

    And the final point is the lifestyle.. Its a very different kind of vacation. Getting to know other people on the lake is *huge*. In an odd kind of way, lifestyles there are a throwback in time… everyone is more casual and relaxed, with impromptu drop-ins and gatherings happening frequently. I’d *never* want that in the city, but its really quite nice for weekends at the cottage…

    In the end, I guess it all depends on how you like to relax… But that’s been our experience.


    • I think we’re just going to come to your cottage for the summer! It sounds fabulous!

      In all seriousness though, I think what you did needs to be our exact plan. Think about it for awhile, but put it off because of the cost and actual ROI. We’ll keep it in the back of our mind, and then, when we find a deal that will hold up for a sale in a few years if needed, take it.

      Now, how did you come across such a great deal?


      • We simply got lucky (as in most great deals :-). We were visiting friends and the owners just happened to put a for-sale sign up that weekend. We started talking with them and over the next couple of months it all fell into place.

        If you know anyone on any lakes, tell them to keep an eye open for you. You get local knowledge of what’s good and bad, as well as an easy “in” to a circle of friends.

        Thats what we’d do if we have to do it again.


  15. One of the recurring sentiments here seems to be that a a relaxation/ family gathering place is the ideal. My take on this is “why wait?” We live outside the metro area in a historical community that many of our friends and relatives consider a vacation destination. We can walk to a river and a National Park. This is not a vacation home but rather our primary residence. If you feel that you need to go somewhere else to be able to relax, perhaps you should focus more on your primary home. I have more land, more trees and more fresh air for half the price of a comparable home nearer the city. My commute is longer but my destination at the end of the day more than makes up for that. this is obviously a personal choice but if you find yourself desperate for relaxation during your vacations then take a look at your job satisfaction and where you live.

    Maybe you can stay where you are, trade down to wealth and as a result have a more varied and adventurous vacation life.

    If you feel like a vacation home is the right choice (there are no wrong answers here, only opinions) I would take the advice of Smarter Spend and find a vacation property in a recession-stressed area. There are plenty of beautiful places out there that can be picked up for a song and dance.



    • Great idea on some of the ways to make your primary home your vacation home too!


  16. The fun part of being on vacation for my husband and me is the fact we are leaving all our daily obligations. If we owned a vacation home, that would just be leaving one obligation for another. So, no, I wouldn’t buy one if I were you, but this is obviously a matter of personal opinion. 🙂

    Budgeting in the Fun Stuff

    • All these thoughts about the work are making me wonder if a condo-type vacation home wouldn’t be better. Take away some of the work!


  17. BTW, thanks for the link love!

    Budgeting in the Fun Stuff

  18. I have a friend that bought into a vacation home with relatives. They each get so many weeks a year at the vacation home and spend holidays on a rotation basis. Once a year all of them get together for a week to do maintenance, usually in the spring. They take turns managing the rentals for the year to other people. They also only rent to people referred by family/friends. The maid lives locally and can check out the property after storms for damage and let them know if something needs fixing quickly.
    It is a lovely home and it shows by the quality furnishings and maintenance. They don’t rent it necessarily to make money above their expenses but frequently do.


  19. Wow….there are lots of great posts & comments up here, and I’m going to add my 2 cents to the mix.

    A vacation home is something that I’ve always wanted to purchase. Not quite sure why, but having a place that one could go every year for 15 years I put lots of value in, and if I ever have children, it would be nice to have something to take them to a few times a year for good memories and such. Along with that, I can give it to them when I’m gone, and they can create their own memories with their kids.
    You seem to have (possibly unknowingly) stepped into one of the murkiest areas of personal finance, that of lifestyle choice. There are quite a few comments that say “Save your money, take vacations at different spots every year, and dont worry about the headaches of upkeep, etc at your vacation house.
    This situation all comes down to personal preference, the root of the “personal” in personal finance. However, completely throwing caution to the wind and failing to look at real numbers such as cost (if you can afford it, im assuming you can) ROI and the like, you can end up in a spot that may be difficult to work your way out of.
    There are many things that you can get solely with money, but money enables you to enjoy them, and this seems to be one of them. Having a spot for you and your extended family to go, relax in and make your own could far outweigh any income loss (from buying a vacation home/condo instead of investing in the stock market).
    Enjoy your decision, and Im sure every commenter would love to hear what you decide to do.

    Jeff @ sustainablelifeblog

  20. If you just have the rental home sitting there, I think it’s rightful to have that feeling of guilt. Because with nothing making use of it, it can quickly degenerate into a liability. One of the best things to do with an empty rent is to get temporary tenants (or longer term, depending on what you want) which will immediately help the flat put money in your pocket.

    To answer your question of ‘Should we buy a vacation home?’ If your numbers add up and you can administer a rent that is ultimately an asset, then my answer is; Absolutely!

    Aury (Thunderdrake)

  21. I’m glad I stumbled upon this. I’m also enjoying the comments. We just put a down payment on a little house 2 hours away from us. It’s just close enough to drive to for the weekend at least once or twice a month. We live in the city with our 3 kids, but both grew up with country life. We want our children to experience both sides. I found a place that I think will be a good investment, so even if we get tired of it in a few years, we probably won’t lose money. I don’t think I’d purchase a place that I couldn’t go to at least once a month.


  22. I am curious on maybe buying a vacation/rental home. The questions I have are, 1. How much down payment do banks usually require, I am guessing 20%? 2. Can you refinance your current home to come up with the down payment? I owe 47k on a 95k home. 3. How much of nightly rent can you figure to get back when going through a rental company? From dealing with rental companies from the other end, some charge cleaning fees, hot tub and reservation fees, etc., my guess would be they still might take some of the nightly rent, but how much? Some also just charge a flat rental fee and others charge more for more people, etc. 4. If you go through a rental company, how easy is it to stay there or let friends or family stay there (like how much notice) and what charges apply if any? Meaning the hot tub fee, cleaning fee, etc.

    Any answers would be appreciated, as I am deciding what to do?


  23. if you can’t pay cash for it, you can’t afford it. and it’s a good idea only if your primary home is paid for, you have the 300K or more in the bank for each kid who needs to go to college, and you’re saving at least 20% of your gross pay for retirement. Too many people with their creative minds – from financing to watching the sunset on a lake is what sidetracked us from reality and got us into the financial mess that’s ransoming our children’s futures.


    • Sak you hit it on the nose. Take a vacation and spend your hard earned money on maintaining your paid off home.


      J. Rusch

    • No offence sak, but 300K for college, you have got to be kidding me. I don’t have kids and don’t plan on having them any time soon but IF that figure was remotely accurate it would seal the deal on me never having kids. NOTHING is worth 300K…excessively large houses, to many cars, and uncecessary purchases are ransoming childrens future, not weekends at the beach.

      As for the vacation home, if you are going to use it and arn’t going to spend your life paying it off then I say go for it. Whats the harm, I know lots of folks who buy a vacation home and evenually retire there. Most of these people are the type who spend a fair share of thier time there, not just a weekend a month type.


  24. Globalmargaret, you obviously don’t have kids or a clue about college costs. My daughter goes to Butler Univ. Room, board tuition and incidentals run $55-60,000. Cost go up 4%-7% per year. If you’re just starting a family $300,000 for 4 years is probably an under estimate-at $50,000/yr X 4% increase per year, your talking close to $400,000 for a private university.

    If you don’t have the money, don’t borrow the leisure IMO .

    We are going through the vacation home scenario now. 2 kids 17 and 20-college paid for, house paid for, no debt.

    I’m 52, my wife is 49, both retired. We have a shared family vacation home in No. WI., but want our own place for memories. What to do? I enjoy the northwoods, wife can take it in small 5 day doses.My daughter loves it, son wants to be home with his friends.

    Mike Scheer

  25. Timely discussion. When we were young, a friend’s father had a large vacation home in Nevada. Since it was beautiful and close to ski resort, it became a magnet for his adult children and their friends (us). It also was a tax haven since CA taxes are much higher than Nevada.

    Twenty years later, we are now thinking about doing the same thing. If you think of it as a financial investment, it does not make sense. But if you think of it as a lifestyle decision, it might make a little more sense. Since we are 50, we figured we could sell it in 10 years if we realize it is not the retirement life we seek.


  26. My suggestion is to go different places each time. you will have fun and experiment many different things. You and your kids will enjoy to meet different people, eat different food, see different beautiful scenery and learn different culture. No need to own vacation home. Also, think about cruise. There are many big discount cruise, if you are retired who can avoid peak season. Your cruise ship will be more peaceful, quite on off season when kids are still in school. To me, my vacation time should be relaxing and enjoyable: No cooking, No fixing, No phone call bothering. Have fun everyone.


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