Is it smarter to buy a vacation home or to rent?

If you plan to spend less than one or two months each year in your vacation home, it's probably best to stick with a rental. Consider how easy it is to travel from your primary residence to your vacation home, and if it's a trip you'd like to take every weekend or long vacation.

Is it smarter to buy a vacation home or to rent?

If you plan to spend less than one or two months each year in your vacation home, it's probably best to stick with a rental. Consider how easy it is to travel from your primary residence to your vacation home, and if it's a trip you'd like to take every weekend or long vacation. But in some circumstances, buying vacation properties can make sense, says Jirayr R. Kembikian, certified financial planner with Citrine Capital.

As you approach retirement, the amount you owe on your vacation home mortgage will be lower or paid in full. But even if a vacation home proves to be a terrible investment, it could provide years of family enjoyment, and many consider it a labor of love. Lisa Ann Schreier, who calls herself the Time Share Crusader, reminds future buyers that there is a big difference between buying a vacation home and a timeshare. The idea of buying a vacation home with a group of friends has appealed to many of us at one time or another, but the idea of joint bank accounts, shared responsibilities, and conflicting schedules deters most.

As with buying a personal residence, vacation home buyers can check websites such as Zillow, RedFin, Realtor, and MLS to research different markets and consider pricing. Homes in major tourist cities such as Miami, Lake Tahoe, New York, and San Diego see well-located residences as being better rented as vacation getaways, rather than a family base. In short, for people who want to constantly return to the same place, buying a vacation home is a smart bet. Even if you rent your vacation home for part of the year (and it's not your main home), it's still a personal residence in the eyes of the IRS if you use it yourself often enough.

If you plan to rent your vacation home, another advantage is the possibility of earning more income, but you'll want to consider the downsides, such as marketing your home to guests (which can be a lot of work) and navigating complex local short-term rental regulations. When you buy a vacation home and decide to rent it, it's possible to create a new short-term rental income stream. After all, if you want to come to your vacation home to relax, paying guests will likely want to do it too, especially if you buy a home that is pleasing to the eye and that is pet friendly. When you buy a vacation home, you're making one of the few investments that offer both personal and financial rewards.

Buying a vacation home allows you to diversify your income, accumulate wealth, plan your retirement and, of course, take a vacation at no additional cost to you. Some investors weigh a benefit more than others, but once you're clear about why you want to buy a vacation home, you can focus your search and match your investment with your priorities.

Shawna Fluellen
Shawna Fluellen

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