Vacation Home: Investment or Money Pit?

[SHELLY]

Thanks for the comment. Having been a frequent guest of some wonderful homes throughout 30A over the years, I would say that I've accumulated a nice profit of memories. And based on the comments of the others, it would behove me to remain as a guest. Thanks to all for the comments.

I second that emotion.

Even people who bought vacation property a couple years "pre-bubble" can't manage to cashflow.

IMO, if you're not thinking of living here permanently, it makes a heck of a lot more sense to just rent what you want. $400K will buy you lots of vacations, both in SoWal and around the world, which will supply a lifetime of "experiences" with none of the headaches.

On the other hand, if you've got lots of money taking up valuable living space at your primary home and you're getting tired of dusting it off every week--by all means, you might want to 'consider' diversifying into some real estate--even then, I'd pick up a few acres of vacant land you can hang on to and pass to your next of kin.

.

 

[Paula]

Thanks for the comment. Having been a frequent guest of some wonderful homes throughout 30A over the years, I would say that I've accumulated a nice profit of memories. And based on the comments of the others, it would behove me to remain as a guest. Thanks to all for the comments.

Renting vacation places is certainly a great way to build experiences. No need to have a vacation place of your own - or even travel at all - to do that. The great thing about experiences is that they are just as available for free if you notice them, create them, and enjoy them with others. Some people have beautiful places/vacation homes and don't enjoy them (or the places may have become a burden to them for one reason or another).

If you're financially in good shape and your accountant agrees that it's a decent decision, then it would be useful to consider "experiences that you can savor" into the equation. But owning a second home is definitely not for everyone (and can become a burden for many people).

For some people, setting down roots in a place and making it their home is part of the experience (I'm a "nester"). I know that my kids love coming to their second "home" in SoWal and just settling in, knowing that some of their stuff is there, enjoying dining off my mom's dining room table that I inherited that they ate at during holidays when they were little, using the table stand from my grandmother to store their popcorn while watching TV, and knowing that they'll be able to use the place with their families someday when they may not have the money to travel (and I get to enjoy the thought of watching future generations hang out in the place someday, but I hope that's not for a long time). And it does indeed make a difference that I hope to spend several months a year in SoWal, maybe even become a resident and make my current home the "second" home in the years to come (where we also have roots). I don't know if I would have bought a place if I didn't intend to partially live in it at some point. So, for me (and other "nesters"), the responsibilites and ups and downs of having second home are offset by these kinds of things.

 

[Smiling JOe]

fisher, you make some valid points about not forgetting about the amount borrowed. I calculated that $160,000 into the math in the way of paying it off over the 30 year period at the fixed rate of 6% (and paid in principle and interest). It isn't forgotten in my calculations. By the way, this interest is the biggest portion of those payments for the first 15 years, and this calculation isn't a return on equity, because interest isn't accumulated and converted into equity. It is an expense as a cost of money.

The returns are calculated on amount invested, because when making investments, we have to calculate the opportunity cost of what you could have done with the money.

 

[30abob]

fisher, you make some valid points about not forgetting about the amount borrowed. I calculated that $160,000 into the math in the way of paying it off over the 30 year period at the fixed rate of 6% (and paid in principle and interest). It isn't forgotten in my calculations. By the way, this interest is the biggest portion of those payments for the first 15 years, and this calculation isn't a return on equity, because interest isn't accumulated and converted into equity. It is an expense as a cost of money.

The returns are calculated on amount invested.

SJ - Fisher is using the GAAP (generally accepting accounting procedures) definition of ROE vs. ROI. While your definition makes "sense" in layman's terms and is helpful for decision making his version is the textbook method.

 

[Beach Runner]

We plan to downsize for many reasons. One of them is that when we die, daughter and future son-in-law worry that they can't afford to pay the taxes, insurance, and maintenance on a big house in Florida. Plus, if he decides to go to grad school at MIT or Stanford instead of Georgia Tech, they won't be able to use the house.

We absolutely adore the 30A area. If we didn't own here, we wouldn't drive down every other weekend, even though renting a place every other weekend would be cheaper. We have our "stuff" here -- groceries in the owners' closet, a small refrigerator in the owners' closet, etc., etc. We each keep a bag packed and just hop in the car whenever we get the notion. Last weekend we hopped in the car and ... OOPS! ... there was a renter here. Thankfully, sister has two homes here, one of which she doesn't rent, so we stayed there.

 

[Paula]

We plan to downsize for many reasons. One of them is that when we die, daughter and future son-in-law worry that they can't afford to pay the taxes, insurance, and maintenance on a big house in Florida. Plus, if he decides to go to grad school at MIT or Stanford instead of Georgia Tech, they won't be able to use the house.

We absolutely adore the 30A area. If we didn't own here, we wouldn't drive down every other weekend, even though renting a place every other weekend would be cheaper. We have our "stuff" here -- groceries in the owners' closet, a small refrigerator in the owners' closet, etc., etc. We each keep a bag packed and just hop in the car whenever we get the notion. Last weekend we hopped in the car and ... OOPS! ... there was a renter here. Thankfully, sister has two homes here, one of which she doesn't rent, so we stayed there.

Hi BR I love your place. One reason we got the two smaller side-by-side cottages is that we could sell one if needed and still keep one - we'll see how the college bills go...

 

[Beach Runner]

Hi BR I love your place. One reason we got the two smaller side-by-side cottages is that we could sell one if needed and still keep one - we'll see how the college bills go...

Thanks. Me, too. But if I could turn back time, I would have built something smaller.

You were wise in what you did. We weren't. Frankly we were like my Mom -- in denial (you know, a river in Egypt ) regarding ever getting old enough to think about retirement and beyond.

 

[Paula]

Thanks. Me, too. But if I could turn back time, I would have built something smaller.

You were wise in what you did. We weren't. Frankly we were like my Mom -- in denial (you know, a river in Egypt ) regarding ever getting old enough to think about retirement and beyond.

I'm a bit of a worrier so I always like to have a back-up plan (and a back-up plan to a back-up plan - all those back-up plans help me sleep better at night). Come and buy a place near me in SoWall (or buy two... an heir and a spare). Your place is lovely, though, as is your location, so I'm sure it would be hard to leave that place.

 

[cooper]

Renting vacation places is certainly a great way to build experiences. No need to have a vacation place of your own - or even travel at all - to do that. The great thing about experiences is that they are just as available for free if you notice them, create them, and enjoy them with others. Some people have beautiful places/vacation homes and don't enjoy them (or the places may have become a burden to them for one reason or another).

If you're financially in good shape and your accountant agrees that it's a decent decision, then it would be useful to consider "experiences that you can savor" into the equation. But owning a second home is definitely not for everyone (and can become a burden for many people).

For some people, setting down roots in a place and making it their home is part of the experience (I'm a "nester"). I know that my kids love coming to their second "home" in SoWal and just settling in, knowing that some of their stuff is there, enjoying dining off my mom's dining room table that I inherited that they ate at during holidays when they were little, using the table stand from my grandmother to store their popcorn while watching TV, and knowing that they'll be able to use the place with their families someday when they may not have the money to travel (and I get to enjoy the thought of watching future generations hang out in the place someday, but I hope that's not for a long time). And it does indeed make a difference that I hope to spend several months a year in SoWal, maybe even become a resident and make my current home the "second" home in the years to come (where we also have roots). I don't know if I would have bought a place if I didn't intend to partially live in it at some point. So, for me (and other "nesters"), the responsibilites and ups and downs of having second home are offset by these kinds of things.

Paula: absolutely agree with you. As with any major decision, the crucial question is "what is your goal?" Of course, having resources to own something on 30-a is an important step. After that, though, the question (as discussed in opportunity costs, ROI, ROE discussions above) becomes "what else would you do with those resources?" We have been so very happy with our decision to buy a home in sowal. One that I hadn't thought about before the purchase was the fact that with a 2nd home, came more pressure to actually use it and take some time away from work and bring the family to sowal. We used to take 1 or 2 weeks off a year, now significantly more, and in the end, will probably extend our working lives by years. Forming lasting relationships with others who have invested in a 2nd home also has generated some tangible financial (and more importantly non-financial) benfits as well. Having stayed in rental properties here for 30 or so summer weeks prior to decision to buy, the numerous "hidden" benefits of ownership clearly more than make up for "cash flow" of the property.

 

[scooterbug44]

Quality time vs. dividends

I don't have the correct formulas or calculations as evidence, but IMO there are far better ways to make a profit than by buying a 2nd home/rental in Sowal. Insurance and maintenence alone are big deterrants.

On the other hand, I can definitively say that the antidote to video games/the internet/cell phones, the 21st century grind, boredom, and generational schisms is the outdoors, time spent together, and a severe lack of electronics.

I have a much better relationship w/ my grandparents as a result of a great deal of time spent w/ them in a remote and simple house that had limited space that threw us together, no tv, 2 radio stations (on a good day), decks of cards, and board games older than me.

If you want to make a profit, crunch the numbers and then go elsewhere, if you want to make memories, welcome to Sowal.

p.s. for best results turn off the damn phone/tv/computer for all generations