Many people talk about buying a vacation home. They dream of a place to escape the daily grind. However, in my experience very few people make it happen. Is this a huge missed opportunity or better in theory than reality?
The most common places people tell me they want to buy a vacation home are:
- At the beach
- In the mountains
- Out in the country (preferably by a lake)
They all sound great.
Sipping mimosas on a deck overlooking something magical, who wouldn’t want that!
But they all come with their own headaches.
- Beach – Hurricanes = Flooding
- Mountains – Snow storms
- Country – Animals 🙂
In addition to the unique risks of the location, there is the normal maintenance of a owning a home. Things like the roof, hot water heater, siding, electrical, plumping all need to be cared for too.
In my experience most people do NOT buy a 2nd home. Many people talk about it but I have seen very few people pull the trigger. The most common reasons are:
- No time to actually look–people want to escape the grind, but can’t peel away to actually find the place!
- Decide they don’t want to spend the money – “cold feet”
- Realize they would prefer to travel to many places and don’t want to feel committed to one place.
So I would say that this is a great conversation piece and something to dream about but something that rarely becomes reality.
2 Case Studies
Howard and Gail live in NJ and sold their home at the height of the housing boom. They turned a great profit and bought a smaller home in NJ and a vacation home in a high-end gated community in Florida. 10 years later the home has become a complete money pit at the worst time. Howard and Gail are entering retirement and have an asset draining their cash.
They are trying to sell the house but the home prices have come down, while the HOA fees have gone up. This makes the property less attractive. On top of this, the community has very strict renting rules. To them, this purchase was a big mistake.
On the flip side…
Michelle and Bill bought a fixer-upper lake house about an hour from their primary home. Bill is in construction and was able to do all of the work himself at a fraction of the cost. 5 years into the project they have a stunning home that they use all year round. Eventually they will sell their primary home and move to this house. They put a lot of money into this project but it has appreciated above and beyond their costs. Their kids can get to the house easily and everyone loves it.
These are 2 real life examples of buying a vacation home. You see it can go 2 ways. Be smart before you buy.
But the idea of a vacation home is still very important.
In most people’s brains, saving VS. saving is at war. And because Financial Planning is not something you can “touch” spending usually wins. So to combat that, we have found that by connecting saving to something tangible, there is a higher chance people will actually do it. Putting money away every month for that beach house is something that can replace the gratification of spending money! But only if you can visualize it. Saving money, just to have more money, unfortunately doesn’t work.
We all want a reward and seeing that beautiful quiet home in our mind seems to do the trick!
This is why all Financial Planning software and Robo-Advisor websites begin with your goals and objectives. They all want you to tie your money to something tangible. And it works!
This is all very good. Like we said earlier, people do NOT typically buy that 2nd home but benefit greatly by having a bucket of money saved.
Emergencies happen. New priorities come up and retirement is always around the corner. All of these life events will benefit from having extra money available. So start visualizing your dream vacation home today! Start saving because whether you buy it or not you will be better off financially!