I had a great weekend. We were fortunate to spend time with some good friends who also happen to own vacation homes on the water (not a prerequisite to being a friend, but it certainly doesn’t hurt). We actually traveled to two different lakes located outside of Austin and the time in the car allowed for some good conversation between my wife and me. One of the topics we discussed was the pros and cons of owning a vacation home. When I was growing up, my parents owned a house on Lake LBJ and I have some great memories of fun-filled weekends at the lake. My wife agrees that a lake house has the potential to create some great memories, but is not completely sold on the idea that we would be able to maximize that potential. If the decision was purely an emotional one, I think that we could both get used to saying, “Hey, let’s go to the lake this weekend!”
Interestingly, however, my parents sold their vacation home just about two years ago. Why? Because it wasn’t being used enough. Despite our best intentions, my wife and I found it difficult to make the time to take advantage of this awesome and “free” benefit. Even as I write this, I am surprised that we didn’t use it more often. After our trips to the lake this weekend, I asked my parents for their perspective on the pros and cons of owning a second home. The first thing my dad mentioned was the extra work. He would usually spend Saturday mornings mowing the yard and taking care of other chores that needed to be done. Then, if something was broken (and something always was) he would have to spend additional time taking care of it. On the positive side, a lake house was a great place to escape and relax. It also produced a lot of good memories. Activities that are perfectly normal at a vacation home (spending an entire day in a swimsuit, reading a book in a hammock, playing board games) rarely take place in a “regular” home.
Assuming your schedule allows for frequent visits to a second home, most would probably agree that happy memories trump a little extra work. The more important question, however, should be, “How does buying a second home impact my lifestyle and financial future?”
Financially, a vacation home can work both ways. My parents realized a decent return on their 20-year investment, but they acknowledge that their timing was rather fortuitous. I am also excluding many of the expenses they incurred over those twenty years, such as maintenance, minor renovations, and other carrying costs. From the beginning, this was a lifestyle decision and their ability to retire did not depend on a positive return from their “investment”. When we counsel clients, we recommend that homes be excluded from retirement plans. You don’t ever want to be forced to sell your home(s) in order to meet living expenses. If your plan doesn’t work with that conservative assumption, perhaps you shouldn’t own a vacation home. Don’t let lifestyle decisions introduce risk to your plan; if there is going to be a surprise in the future, let it be to the upside.
Returning to the conversation with my wife, my primary concerns about buying a second home are the following:
- Freedom. If I bought a vacation home, I would feel compelled to use it often. I very much enjoy my circle of friends in Austin and leaving town on the weekends does not fit in well with our social life.
- Simplicity. One of my personal goals is to keep life simple. I have seen how owning a second home adds complexity to life. If I want to go to the lake for the week-end, I think it might be easier to rent.
- Uncertainty. I had some great memories of time spent at the lake, but it wasn’t due to the house itself. It was due to time spent together as a family. I have no clue what our family is going to enjoy doing five years from now, but I would like to leave the possibilities open (for now).
Don’t get me wrong. I’m not saying that buying a vacation home is a bad idea. However, I think you need to make sure it is right for your personal situation. The people who sell vacation homes and timeshares know this, too. First, don’t let anyone persuade you to buy a second home as a good investment. A second home is a lifestyle choice, not an investment! Second, make sure that a second home fits into your family’s lifestyle. Third, make sure you can afford it. The true cost of owning a vacation home is much greater than the sum of the mortgage payments. Think about travel costs, maintenance costs, “toy” costs, HOA, insurance, taxes…
If you are considering the purchase of a second home, give us a call. We would be happy to run projections and define exactly what you can afford without putting your long-term financial goals in jeopardy.
Have a great summer!