Dreams for Sale: Considerations Before Buying a Vacation Home

Dreams for Sale: Considerations Before Buying a Vacation Home

July 30, 2021

Vacation living can be fabulous. The stress of daily meal preparation, schedules and work commitments fade away, allowing you to reconnect with family and friends in a way that can be challenging to do in your regular life. As soon as you return home from a great vacation, it is common to think, “How soon can we return?!” The purchase of a second home in your favorite vacation spot may seem like a dream come true or even a “necessity” after the shelter-in-place experience of 2020. And given the current hot real estate market, it may feel like a good financial move as you consider the price appreciation you could experience after your purchase and how much you’ll save on hotel bills. And all that could be true but buying a second home is a big commitment worthy of careful consideration. Here are five things to think about before you dive in:

Cost: Can you afford it? This might seem obvious, but beyond the initial cash outlay for the purchase, there are insurance, maintenance and possibly property management expenses to consider. If your vacation home will sit vacant for the majority of the year, hiring someone to keep up the yard and make sure there aren’t any unwanted visitors—human or animal—should be added to your list of expected routine expenses.

Location, Location, Location: Is your ideal vacation home within driving distance from your primary residence, or does it require a full day of travel or a plane ride to get there? While the image of a remote, tropical paradise may be dancing in your head, homes in faraway places aren’t likely to be used very often making them expensive on a per visit basis. Additionally, the maintenance and insurance requirements can be more significant—or potentially impossible to obtain—if your piece of paradise is in a flood, hurricane or forest fire zone.

Investment Potential: Will your vacation home simply be a “use” asset or are you expecting it to do double duty as an investment asset as well? While it might seem like you just can’t lose when investing in real estate, estimate the expected return on your investment by viewing comparables in the area to determine if the money could be better invested elsewhere. Most vacation homes aren’t used as often as planned, so buying a place with rental potential can help offset the expenses you’ll incur and possibly put it in the affordable range or better yet, make it profitable.

Tax Impact: If you decide to rent your vacation home for more than 15 days per calendar year, the IRS will want their share of your income. However, you will be able to deduct operating expenses like insurance and repairs based on the number of days it was rented versus maintained for personal use. And like your primary residence, mortgage interest expenses and property taxes are deductible to a point. According to the IRS, a married couple filing jointly who itemize their deductions can deduct interest on mortgage debt up to $750,000 and property taxes up to $10,000. 

Exit Strategy: Do you plan to pass your vacation home to your kids someday or sell it when the market is particularly hot? Perhaps today’s vacation home is where you plan to retire. Thinking about your ideal ownership time horizon before making a purchase is important. If you plan to be in it for the long haul, finding a place with year-round appeal that will work for your family now and in your Golden Years makes sense.

If buying a piece of Shangri-La means sacrificing your long-term financial goals in other areas, the cost is too high. But for many, owning a vacation home is a dream realized.

Articles and Commentary

Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.

Video Presentations

All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.

Recent Posts

Jun 24, 2022
CNBC Halftime Report: Analyzing the Fed Chair's Testimony | June 23, 2022
Sand Hill News
Sand Hill News
CNBC Halftime Report: Analyzing the Fed Chair’s Testimony | June 23, 2022

Watch Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA join the CNBC Halftime Report to discuss the Federal Reserve's interest rate hike and its impact.

read more
Jun 10, 2022
CNBC Halftime Report: Strategies in a Volatile Market | June 10, 2022
Brenda Vingiello
Brenda Vingiello,  CFA
CNBC Halftime Report: Strategies in a Volatile Market | June 10, 2022

On June 10, 2022, Sand Hill’s Chief Investment Officer, Brenda Vingiello, CFA, joined the CNBC Halftime Report panel once again to discuss the ongoing market

read more
Jun 6, 2022
CNBC's Closing Bell: Overtime | "The Fed Needs to Talk Tough Right Now" | June 3, 2022
Sand Hill News
Sand Hill News
CNBC’s Closing Bell: Overtime | “The Fed Needs to Talk Tough Right Now” | June 3, 2022

Brenda Vingiello, CFA, joins the Closing Bell: Overtime investment panel to discuss the Fed balance sheet, rate hikes, and market volatility. Check out her commentary

read more

Stay up to date, receive email updates from Sand Hill directly to your inbox!