Do you think a vacation home is a good investment?

[Anonymous]

Anonymous wrote:We have been talking about getting a vacation home for years. DH got a large bonus this year and we are now sitting on a sizable amount of cash. Our family likes to travel but we don’t necessarily like to go to the same place so it is hard to pick one place for a vacation home. We like the beach but may want to go to Maine one year and the outer banks the next. Same with skiing. We go somewhere different every year. I also don’t want to go to the same beach for 2 weeks. If we go on a long vacation, it would not be to a beach house.

From an investment standpoint, would be just be better off investing in mutual funds vs a vacation home?

It’s a terrible thing for people with children to buy, because it can serve as an anchor for all sorts of family drama. Your kids could get into all sorts of insane fights over it.

[Anonymous]

Don't ask people as experiences are subjective and many bought long ago. It's like any property in a good desirable location. Those who bought a decade ago or with low rates and lower prices feel like it's been worth it. Those who are buying now may be in different shoes. Don't know what future holds. Also you won't get much perspective of ppl who bought in other locations that aren't $$$$ and in higher demand like Delaware which is small.. Maybe ask someone who bought further south where beach properties are far more plentiful and people aren't as rich as they are in the NE. Or those who bought airbnbs in the SW which is having some sort of crisis now. FL is iffy, homes in good suburbs appreciated like crazy, so those who bought them for vaca homes are happy. But those who bought condos maybe not so happy, and those who bought SFHs in less desirable areas thinking they will get tons of guests for their airbnb like they used to during the pandemic maybe are regretting it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For us, absolutely! We purchased an ocean front house in Corolla, NC in 2017. We got it for a steal and it has a mortgage at a nice low fixed rate. It needed a little bit of TLC with new paint and new furnishings and we redid the bathrooms and decks. The TLC cost about $115K. It was a stretch at the time, but I’m so glad that we took the leap and made it work.

We rent it for 5-7 weeks in the summer and net almost $13,000 per week and it pays for the mortgage, taxes, insurance and upkeep. And we spend the other weeks enjoying the house.

And the house’s value has shot up.

But if we had not had the cash to fix it up and gotten lucky with the interest rate, it would not have been a good move on our part.

Why don’t you rent it the rest of the year? Are you using it! How much did you pay for it?

Tons of short sales/foreclosures on OBX - you just have to look for them.

Because people going there aren't all loaded like those crowding DE beaches which are smaller and serving affluent DC, Philly metros that don't have other options for shorter drives. OBX is huge and serves areas that are generally poorer and also can drive to FL.

Another conundrum with the beaches that aren't all year round usable - off seasons is slow and depressing. You need a special type of person to appreciate cold beaches, and those aren't plentiful enough to create demand. Expect to stay empty during off season, so this means you have to rent out during warmer months you want to use yourself to make income if you need it. If your kids are in school, that warmer months period is vastly reduced, and it's the time you get highest rent.

[Anonymous]

OP, what compels you to want vacation property really? Is it preparing for retirement and worrying there won't be any places you will afford then? Or is it wanting to park your money somewhere? Or is it giving different memories to your kids and establishing a circle of friends for them, so that summers aren't all about local summer camps and one nice vacation? Not clear what your real reasons are.

[Anonymous]

Based on OP's description, they probably should pass on a vacation property. If, after several years of trying out different ski and beach destinations, they found something they though worth returning to time and time again, then sure.

[Anonymous]

Not anymore as prices have increased too much. Glad we bought 18 yrs ago.

[Anonymous]

I’m from the Jersey sure and I’ve invested in OBX because I couldn’t afford the Jersey shore.

I’ve learned that it’s basically like the stock market but more stressful. If you’re really in it for the very long haul - I’m talking decades -you’re just not gonna lose money. Otherwise it’s about timing.

We bought high in OBX in the very early 2000s and sold low maybe 7 or 8 years later after concluding that maintaining the house wasn’t worth the stress and effort and that we were throwing good money after bad because there was no indication that prices were going to rebound soon.

We ended up selling for 40 percent less than we paid and having to write a six figure check to pay off our remaining mortgage at settlement. The only consolation was that because it was a rental property we could write off the loss on our taxes, so we recouped about half of it.

We saw later that the buyer actually sold the house again a couple years later, for even less than she paid us. So she, too, incurred a loss.

Looking at Zillow/Redfin now, the estimated value of the house is just in the last year or two passing the value of what we paid all that time ago. In other words, the value of the house is barely higher now than it was when we bought it 20 years ago.

Talk about bad timing.

My siblings have had the opposite experience on the Jersey shore. One bought a house for nothing 30 years ago and it is now worth several million. The other bought seven or eight years ago and has seen a real jump in prices since Covid.

To be clear, prices haven’t just jumped at the beach during Covid. They jumped in less populated places everywhere. We bought a true second home (not a rental and not an investment) a couple hours west of DC in the summer of 2020 and according to Redfin/Zillow it’s gone up in value anywhere from 30 to 50 percent already.

So, yeah, I would not assume that the luck of buyers in the last several years is guaranteed or will last forever.

The one other thing I will say, I have learned personally from owning a beach house is that when it comes to estimating expenses owners are more like commuters than men with their penises: estimates are always ridiculously wrong on the low side. Renters destroy your property, thinking nothing of blasting the a/c and opening the windows, for example. HVAC systems have much lower life spans as result of this and the salt air and harsh winter elements, requiring more frequent expenses. Upkeep in general is more costly and difficult. I could go on but I’ve suppressed the memories ha ha.

Bottom line to me: unless you’re planning to hold on to the property forever and don’t need to rent it out, buying a beach house is a risky investment.

[Anonymous]

Makes no sense for you if you aren’t going to use it. And you are buying in at high prices in most places.

Ours has turned out to be a good investment thanks to the boom market. Paid $1m 10 years ago, currently worth over $2m, possibly $2.5m. But our last beach house did not appreciate and we sold at the wrong time (except that we were able to buy our current house at a low point). The second home market can be more volatile.

We use ours for 3-4 months a year and don’t rent.

[Anonymous]

I think a beach house is a pretty risky investment in this day and age, given climate change, especially in the outer banks. How has nobody referenced this gif in this entire thread?

https://giphy.com/clips/storyful-northern-america-beach-house-weather-and-science-5eUavFFXo2TE3XoXJc

Property insurance is likely to be sky high, and its likely these properties will become uninsurable in the immediate future.

If you do buy a beach house, you are better off buying somewhere a few miles inland.

[Anonymous]

Anonymous wrote:I think a beach house is a pretty risky investment in this day and age, given climate change, especially in the outer banks. How has nobody referenced this gif in this entire thread?

https://giphy.com/clips/storyful-northern-america-beach-house-weather-and-science-5eUavFFXo2TE3XoXJc

Property insurance is likely to be sky high, and its likely these properties will become uninsurable in the immediate future.

If you do buy a beach house, you are better off buying somewhere a few miles inland.

+1
I mentioned selling our place earlier--this, and the increasing insurance rates, motivated me.

[Anonymous]

With current interest rates and Air BnB usage I don’t think it is a great time to buy. Costs for interest rates, maintenance, repairs, and management have gone up. Obviously this all really depends on location and how much personal use you will get out of it. I tend to think would make more money in then in a vacation home. That has been the experience with my parents place. However, they love their cabin and it keeps them busy in retirement.

[Anonymous]

Anonymous wrote:I’m from the Jersey sure and I’ve invested in OBX because I couldn’t afford the Jersey shore.

I’ve learned that it’s basically like the stock market but more stressful. If you’re really in it for the very long haul - I’m talking decades -you’re just not gonna lose money. Otherwise it’s about timing.

We bought high in OBX in the very early 2000s and sold low maybe 7 or 8 years later after concluding that maintaining the house wasn’t worth the stress and effort and that we were throwing good money after bad because there was no indication that prices were going to rebound soon.

We ended up selling for 40 percent less than we paid and having to write a six figure check to pay off our remaining mortgage at settlement. The only consolation was that because it was a rental property we could write off the loss on our taxes, so we recouped about half of it.

We saw later that the buyer actually sold the house again a couple years later, for even less than she paid us. So she, too, incurred a loss.

Looking at Zillow/Redfin now, the estimated value of the house is just in the last year or two passing the value of what we paid all that time ago. In other words, the value of the house is barely higher now than it was when we bought it 20 years ago.

Talk about bad timing.

My siblings have had the opposite experience on the Jersey shore. One bought a house for nothing 30 years ago and it is now worth several million. The other bought seven or eight years ago and has seen a real jump in prices since Covid.

To be clear, prices haven’t just jumped at the beach during Covid. They jumped in less populated places everywhere. We bought a true second home (not a rental and not an investment) a couple hours west of DC in the summer of 2020 and according to Redfin/Zillow it’s gone up in value anywhere from 30 to 50 percent already.

So, yeah, I would not assume that the luck of buyers in the last several years is guaranteed or will last forever.

The one other thing I will say, I have learned personally from owning a beach house is that when it comes to estimating expenses owners are more like commuters than men with their penises: estimates are always ridiculously wrong on the low side. Renters destroy your property, thinking nothing of blasting the a/c and opening the windows, for example. HVAC systems have much lower life spans as result of this and the salt air and harsh winter elements, requiring more frequent expenses. Upkeep in general is more costly and difficult. I could go on but I’ve suppressed the memories ha ha.

Bottom line to me: unless you’re planning to hold on to the property forever and don’t need to rent it out, buying a beach house is a risky investment.

+1000
And if you are going to rent it out, you still need to "plan when you want to use it a year in advance". So you might as well reduce the stress and potential for $$$ losses and just rent a place for the 1-2 weeks you want to go. Much easier, and also gives you the flexibility to go elsewhere on a vacation some years.

[Anonymous]

I've had one for 10 years and it's not a good financial investment. Too much time and money for upkeep etc. But I still love it. From your description, I don't think it's for you (you want to go lots of different places).

[Anonymous]

In my opinion vacation homes are awful financial investments. If it truly is just a vacation home and never rented out then you have to count on appreciation to cover not only your earnings on your investment but your repairs and carrying costs as well. Run the numbers- do a comparison of that money invested in the market, and the compound interest you’ll earn versus the historical appreciation from anywhere you’re looking to buy. From a purely enjoyment perspective it can be a good investment into family time.

As far as being stuck going to the vacation home all the time that doesn’t happen. I use mine when I’m free but take regular vacations like everyone else.

[Anonymous]

We bought a home in OBX in 2010 and sold it two months ago for 1.7Xs what we purchased it for. Made over $800K abii oh r what we paid for it 13 years ago. We primarily rented the home and had a positive cash flow. Didn’t want too much of our NW tied up in one house, so sold.