Skip to main content
No. of Recommendations: 8
I have recently been pondering this issue of "Real Estate as an invesment". It sounds like a sound investment to me, but hard to get into with little cash. A 10% down payment can be tough for a first timer like myself.

Here is the Question:
Is a "second home" or a "vacation home" a sound investment. From everything I've heard, it seems so. I've been looking at property near a local ski resort and the prices are quite affordable. 2 - 3 bedroom Cabins, Houses, and Condos are in a reasonable range. We would probably use it 3-4 times a year. The rest of the time I would hire a "Vacation Rentals" place to handle renting it out to vacationers. They have a good track record, and claim low vacancy rates. The money we get from renting it out should pay the mortgage, insurance, and property taxes. In addition, we get a cheap vacation spot every few months.

I'm hoping to hear from someone who has experience doing this. Would the Mortgage be considered an investment mortgage? What risks might there be? How does this financially compare to investing in a "residence property"?
Print the post Back To Top
No. of Recommendations: 0
WARNING: LONG REPLY
Investment properties and second homes will generally require a larger down payment than primary residence. Lenders feel that a borrower are less likely default on a primary residence than either second homes or investment properties. Investment properties may require between 20 to 35% down and second homes 10-20%. I just closed on an investment property on Tuesday & put down 25%, with a 5/1 adjustable rate mortgage starting at 8.5%. Make sure that you'll have a good cash flow based on independent research & not the opinion of a local realtor or vacation renter who are looking for your business. Vacation properties at resort communities tend to be very competitive for renting since other owners are often in a similar position and aggressively looking for renters, not to mention that those properties tend to be seasonal and rentable only for a few months out of the year. This is especially true in older areas where prices have appreciated and your competing for renters with owners who may have purchased years ago, for lower amounts, have smaller mortgages, lower mortgage payments, and the ability to reduce their rents without having to come out of pocket. Good luck.
Print the post Back To Top
No. of Recommendations: 0
When buying a second home as an investment, don't forget about the tax angle. If you spend more then 14 days there a year, it is treated as a 2nd home versus investment property. With 2nd homes, you can deduct the interest, but not the expenses. In some cases, this distinction could be important.

One quick story....

We were looking at resort property at one point. Ours was at a beach location on St. George Island in Florida. The agent was very knowledgeable about renting out the houses and had good data on expected income and expenses. For the house we were looking at, we would have a negative cash flow of "only" $600 a month (with a 50k down payment, of course).

What a selling point.....

She did, however, claim that houses have appreciated 20% a year over the last 15 years. If that's true, and if that would continue, it MIGHT be a good investment. But we can get that around where we live with positive cash flow.

Anyway, we passed on the beach house.

Mark
Print the post Back To Top
No. of Recommendations: 0
Is a "second home" or a "vacation home" a sound investment.

Sorry, but I think the only thing sillier than buying a vacation home as an investment is buying a time share as an investment.
Print the post Back To Top
No. of Recommendations: 8
Sorry, but I think the only thing sillier than buying a vacation home as an investment is buying a time share as an investment.

While I see this logic, I am also amazed at a friend who has purchased a condo in Mammoth. He has a management company run all of the operations of renting it out, cleaning and so on. His cash flow is 0-positive, but never negative. So the equity he now has after 5 years of ownership is rather substantial.
Plus he gets a place to vacation 4-6 times a year for free.
Print the post Back To Top
No. of Recommendations: 0
Sorry, but I think the only thing sillier than buying a vacation home as an investment is buying a time share as an investment.

I certainly lean towards cwarren007 on this topic.

However, I remember seeing something on the news about 10 years ago about (then) Pres. Bush's personal finances. Apparently his net worth skyrocketed while he was in office. They broke down his assets (including a large blind trust) and virtually all his gain in net worth came from his "vacation" house (compound?) in Maine.

Sometimes, no matter how "bad" your real estate investment is, it's difficult not to get rich over time.

Mark
Print the post Back To Top
No. of Recommendations: 0
His cash flow is 0-positive, but never negative.

I guess I'm showing my personal opinion that a successful investment returns spendable income during the time of ownership.

...condo in Mammoth

You're right, "location, location, location" works, even for some vacation homes.

I guess I'm too conservative to consider it, (knowing people who have had to "eat it" when selling their vacation homes), and the thought of returning to the same vacation place year after year doesn't appeal to me.

Thanks for pointing out a different school of thought, though.

Chris
Print the post Back To Top