Unlike buying a primary home, which I think you should buy as soon as you can afford, buying a vacation home is a different matter.
No one needs to buy a vacation home. It’s a luxury expense that not everyone has to make. You probably won’t use your vacation property enough in a year to justify that expense, and it could end up being a suboptimal investment.
My own experience has left me a bit jaded. I purchased his Palisades Lake Tahoe vacation property in 2007, just one year after the real estate market peaked. Despite being discounted by about 15% from its 2006 price, the property’s value continued to decline by 50% during the global financial crisis.
Admittedly, my perspective might have been more positive if I had purchased the vacation property at the bottom of the market. However, I still maintain that owning vacation property is not the best investment.
The value of a vacation home increases when a child is born.
If you are a single person or a couple, you are unlikely to use your vacation property often enough per year to justify owning it. After all, most Americans take less than 30 total vacation days a year, and it’s doubtful they’ll spend all 30 days at a vacation home.
It is important to rent your property as much as possible when you are not using it for more than 330 days. Otherwise, you could end up incurring property taxes, HOA fees, and maintenance costs that could put you in the red. It’s better to forego owning vacation properties and instead use your cash to vacation in your favorite locations around the world.
Even though I had more freedom after 2012, I only spent 30 days a year in my vacation home in retirement. Since it was just my wife and I visiting, we preferred to diversify our trip to Hawaii with our exploration of Europe.
However, once a child is born, the value of the vacation home skyrockets. Here are five main reasons.
1) More people will be able to enjoy vacation facilities
The more people enjoy your vacation property, the more valuable your vacation property will be. My wife and I enjoy vacation property, but a two-bedroom, two-bathroom condo for just the two of us was too much for her first 12 years of ownership. . We could have saved a lot of money by just renting a hotel room instead.
Below is the exact layout of our vacation property. It comfortably sleeps up to 4 people and can accommodate up to 8 people if required. Since we now have two children with her, we are able to take advantage of the entire property, with my wife and I in a king-sized bed and our two children in their own queen-sized beds. Or, if you have a sofa bed, each person can have their own bed.
Fortunately, we have vacation properties available for rent in three different configurations: 1) 2 bedrooms, 2) 1 bedroom suites, and 3) 2 queen studios. Therefore, even if we were vacationing there, we could often rent one side, so it was not the biggest waste.
2) The cost of vacation property is amortized over more people.
The more children you have, the more expensive the vacation home will be.
Our vacation properties rent from $500 to $1,500 per night, depending on the time of year. If it’s just my wife and I, the cost will be between $250 and $750 per person per night for her. But now there are four of her, so the cost per night drops from $125 to $375.
All expenses are shared between the four of you, from HOA fees to maintenance fees to annual property taxes. As a result, vacation properties feel like much more valuable.
Our vacation property comfortably accommodates 3 children and 2 adults. So if you want to spread the cost further, you should have another child. Oh, we’re too old.
3) More comfortable living environment for families
Airbnb has a clever commercial that highlights the difficulty of renting just a room for a family vacation. It is not ideal for the bedroom to double as the living room, kitchen, and dining area. Having a young child who can’t sleep through the night can disrupt everyone’s sleep.
Due to budget constraints, most families cannot afford a vacation rental as spacious as their primary residence. Therefore, going on vacation often means downgrading the accommodation.
However, if you own a vacation property that suits your family’s needs, you can enjoy a better layout and more comfortable vacation. This is one reason why owning a vacation home becomes more appealing after you have children. Once you’ve finished or almost finished raising your family, you can invest in a vacation home. appropriate size.
As a single man, I took a risk and purchased a two-bedroom, two-bathroom condo in 2007 that was just over 1,000 square feet. For 10 years after purchasing it, it seemed like a wasted investment. The villa was unnecessary and too large for our family. It felt like I was driving a large SUV with just me, or just me and my wife.
However, in July 2019, I finally brought my 2-year-old son to our villa. That was what started to make us feel like our property was worth something. When I vacationed with my 10 month old daughter during the pandemic in October 2020, I finally felt that this vacation property had fulfilled its potential.
4) A stable second home for children to build lifelong memories.
One of the great things about owning a vacation property is the familiarity it brings. Children become accustomed to the place and its environment and develop a greater sense of security. You can store photos, clothes, toys, stuffed animals, and more in your vacation home to make it feel like a second home.
There are two lockers for the owners. One to store your personal belongings within the unit and another in the owner’s lounge on another floor to store all your ski and snowboard gear. It’s a luxury not to have to carry all your equipment and personal items every time you visit Lake Tahoe.
Plus, it’s fun to learn about the town surrounding your vacation property. Get to know restaurant and bar owners, discover secret hiking and ski trails, and attend local events. Over time, you may even develop friendships that create a stronger sense of community.
Children love going on adventures, but younger children especially value the familiarity of a second home. Routine is essential for sleep, mood, appetite, and bathroom regularity, making a second home an ideal retreat for family vacations.
5) Give yourself more time to build more wealth
Children are definitely expensive and require a lot of time and energy. Therefore, it is wise to accumulate as much wealth as possible before they arrive.
When children come here, people naturally want to spend time with them and often have less time to work. Although this isn’t always the case, spending less time at work can also slow your income growth.
Invest as much time and energy as is reasonable into building wealth before starting a family. You may also consider setting a net worth goal before having children. This will save you a lot of financial stress when your items arrive and allow you to better prioritize your spending.
The only downside to waiting to buy a vacation property until you have children is that its value may increase faster than your income can catch up. But if so, great! Just rent a hotel room or a house. It’s much less time consuming and more efficient.
Finally, excited to go to our villa more often
After experiencing a wonderful family ski vacation in April 2024, we are excited to visit our Lake Tahoe vacation home more often. Although she still traveled, there was a period of three years when she wasn’t as enthusiastic about traveling.
Previously, we focused on summer visits primarily for hiking and water sports. Now, with the addition of the skiing aspect, he plans to visit three times a year, every year until the kids graduate high school. This means 12-14 years of new family experience and bonding.
Wait until your youngest child is at least 3 years old before purchasing
The decision to purchase a vacation property should primarily be based on lifestyle considerations, with investment considerations secondary. If you are purchasing a vacation property, consider it as an expense.
Ideally, hold off on purchasing until your last child is three years old. Until they reach that age, children usually don’t worry too much about where they vacation. As long as there’s a pool nearby, good weather, a playground, fun activities, and loving parents, that’s all that matters to them.
However, if you want to buy a vacation property but aren’t sure how many children you’ll end up having, here are some compromises: Wait until your first child is 5 years old. Even if your other children don’t fully appreciate vacation homes until they’re older, you can create fun new experiences for your eldest and yourself.
Looking back on my own experience, if I had waited to buy a vacation home in 2022, when my first child would be 5, instead of in 2007, I would probably be $500,000 richer today. If the yield on government bonds is above 5%, she can earn an additional $25,000 in risk-free passive income per year.
Unfortunately, it’s too late to change that decision. However, I can share my experience to help you make a more informed decision when it comes to purchasing vacation property. At least we had a good time at this establishment.
Good luck buying things you don’t need!
reader questions
Does anyone else regret buying a vacation home before having children? What do you think about my recommendation to buy a vacation home after the kids are born? What did you do with your vacation property after the kids left home?
More strategic investment in real estate
Instead of purchasing vacation property, consider investing in passive real estate investments across the country for better returns.
consider Fundraising activitiesis a leading private real estate investment firm with over $3.3 billion in assets under management. Fundrise primarily focuses on residential and industrial properties in the Sunbelt region, which tend to have lower valuations and higher yields.
By investing in real estate through a platform like Fundrise, you can generate passive income that you can use to fund your vacation anywhere in the world. After all, simplicity often leads to happiness.
Personally, I allocated $954,000 to a private real estate fund primarily focused on downtown real estate. As remote work becomes more common, it’s reasonable to expect that Americans will increasingly gravitate to lower-cost regions of the country.
Fundrise is a sponsor of Financial Samurai, and Financial Samurai is an investor in Fundrise.