Do you think a vacation home is a good investment?

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08/15/2023 17:04

Subject: Do you think a vacation home is a good investment?

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Anonymous wrote:With hurricanes and rising tides beach property seems really risky to me. I think people also often buy when they have little kids and then find with other kids that they can’t really use it due to sports and other commitments. The people I know who use them regularly have kids who are kind of introverts and/or don’t do sports or theater or dance or anything like that.

I’ve always found it odd that people list climate change as a reason not to buy a beach house while ignoring that such a huge portion of our GDP and infrastructure are based in coastal cities.

If climate change disaster happens, we’ll all have a lot bigger problems than just a beach cottage being wrecked.

Live your best life now.

Climate change is happening, it’s getting worse (see flooding in VT and fires in Maui), and you should be sensible about where you buy. I would look up any property on the First Street Foundation’s website to see flood, fire, wind, heat risks. If you want to buy a property with a lot of risk you should just accept that you’ll likely need to rebuild at some point in a 20- year period and if it’s in a place like Florida or California you should understand that getting P&C insurance over the next few decades will only get harder and be more expensive. If you’re OK with that than go for it, but view it for what it is - a risky investment with little likelihood of a long-term return.

I took your advice and looked up the risk factors on First Street Foundation's website for both our North Carolina beach house and our Bethesda house in Sumner. Guess which one had an "extreme" level of risk for flooding? Bethesda.

So you've likely doubled your risk having a primary and a secondary home in a flood risk area (I'm assuming like most NC beach houses there's significant risk if not extreme--the NC beach house we recently sold was extreme risk and was already on a trajectory of insurance policy reviews).

Yes - coastal flooding is a given with climate change but inland flooding is also a real risk with climate change. And inland flooding can happen in places where there is/has been extreme drought (remember what happened in California over the winter) and where there is not a recent history of flooding (Vermont example). There have been some recent articles on how climate risks have not been priced into the housing market yet but it’s worth doing the minimum amount of due diligence before buying to try to understand the risks, especially if it part of your retirement planning or you would like to pass the property on to your children. My parent’s own a house a street back from the ocean in Florida and no one in my family thinks of it as a long-term investment. My mom jokes it will be under water soon. It’s kind of sad, but that attitude is probably healthy.

I felt almost guilty selling our vacation home bc it seemed insane to me to purchase a house at that price with extreme flood risk, but it seems some people have enough money not to care. The market where we sold is very tight and people are snatching up properties as soon as they are up for sale. But the buyers made similar kinds of underwater jokes---'we'd like to retire here if it's not underwater by then' etc. The level of denial seems very bizarre to me--I literally have watched over the years the flooding getting more intense in the very neighborhood and a lot of people have mold issues from even just minor flooding. There are plenty of people who leave their house unused for weeks/months and then come back to significant mold issues. Already opening up a vacation home when you've not been there a bit comes with surprises. We didn't rent it out to others, but had a caretaker who looked out for it (and for a lot of the places in the area). There's always something needing fixing etc. Add in mold? Doesn't seem like a great vacation to me. And the idea that this will serve as a retirement home in a few decades?? It was such a relief to get rid of that place. I guess I'm out of step with the majority view.