No. of Recommendations: 3
I would go ahead with the vacation/rental house in a heartbeat.

I have 3 rental houses (not vacation, just plain old rental real estate), and they have by far outperformed the stock part of my portfolio. One of the reasons is that I can't look up their value on the internet every 30 seconds and can sell the with a mouse click, so I have to buy & hold.

Look carefully at the historical price appreciation in the area your are considering. If it has not been volatile go ahead and buy/build. You already have ~$60 K in REITs. Owning real estate directly puts you much more in control of your own destiny than a REIT.

How handy is you husband? I built the house I live in with my own hands, and I can tell you that it is the biggest job he will ever undertake. Look carefully at the local ordinances before you start. I had a bad situation where we had a local ordinance against doing construction work on Sundays and a bad neighbor who was constantly complaining. Fortunately I had flex time at work & could work on Sundays and take Fridays off so I finished the house, but it was difficult.

BTW, in ~ 30 house-years of owning rental real estate I have never had a broken toilet or any other emergency at 3 AM or any other hour of the night. Think of your own house--when was the last time that happened to you?

Including you house, your net worth look to be about $1.6 M. If you but the rental/vacation house you will be putting about 600k of that into real estate. I do not think this is overweighted at all.

One of the often-overlooked features of rental real estate is that it is difficult to turn it into a total disaster. Say vacancies in the area go up--lower your asking price and you will keep it rented. This is especially true of a short -term rental. You can afford to take a small loss for many years and it will not be a death blow.

The other issue you are facing is that your net worth is large enough that reasonable percentages of it are very large numbers. $225k sounds like an enormous amount, but it is only 14% of your net worth. Even if the investment is totally unsuitable and you lose 30% of it, you are looking at 4% of your net worth.

Go for it.
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