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4 Questions to Ask Before Buying a Vacation Home

Updated: Jan 18


Vacation home backyard to paradise
Thinking of making your vacation destination a second home?

Many of you know that I’m a real estate investor at heart. At a young age, whenever I traveled with my family on vacation, I would always grab a copy of the local real estate books. I’d pour over the properties. More often than not, they seemed out of reach financially. I was 19 afterall. But, I tried to remind myself that we were only there for a week and it was better to enjoy the trip instead of obsessing over how to find, locate, and purchase a well priced property.


Fast forward to today, I’ve found I’m not the only one that looks to move wherever I vacation. And as a trusted financial advisor, my clients come to me with their interest in owning a vacation home and its potential of becoming a good source of passive income.

Have you ever dreamt of calling your favorite travel destination home? Before you purchase a beautiful bungalow or cozy cabin, here are 4 points to consider.


1. How often will the home be used?

Do you plan to rent it out when it is unoccupied? Can family come and stay when you’re not there? Having a plan for how often you will use it and what will be happening to the property while you are not there are extremely important factors to consider.

If you plan to use the home less than 30 days of the year, stick to renting other people's properties. Let them pay the taxes, maintenance, insurance and mortgage.

2. When are you making the decision to buy a second home?

A second home can be a large expense and its purchase should not be made lightly. Consider your overall financial plan and how the goal of a vacation home fits within it.


Have your financing well in place before you shop or sign any binding offers. Unless you are paying cash, a higher down payment may be required to secure a second or third property beyond your primary home, especially if its price increased dramatically beyond actual value during COVID's real estate hysteria.


3. What is the ongoing cost of owning a second home?

Owning a second home isn’t just a second mortgage payment, it’s a second everything. You’ll need to consider the costs of furnishings, property insurance, property taxes, maintenance fees, and potential HOA fees. If you plan to rent the home out during the months you aren’t visiting the property, then you’ll need to anticipate additional costs, such as a property manager, increases to insurance, income tax, and replacements to damaged furnishings.


4. Anticipate the unexpected.

Your vacation home is there year round, even if you aren’t. Have a plan to weather unanticipated events. You will need someone to look in on the property to check for frozen pipes or unforeseen problems.


Final thought.

We recommend that our clients rent for at least a month, three years in a row, in the same town before making a vacation home investment. The reality of transitioning from vacation mode to living local mode, may or may not be as appealing as you thought when you first arrived. If you’re curious what else there is to consider, your trusted financial professional may be able to provide resources to help answer your critical questions.


Are you on track to meeting your goals for your retirement vision? Is establishing a legacy vacation property on your mind? Are you considering becoming a snowbird and looking to travel someplace warm during the winter months of retirement? If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.

Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.



You may also be interested in reading:

Rent, Don’t Own, Your Vacation Home

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.


Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.




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