We own a vacation home. It's on a cove and we have our own dock. We spend 2 seperate 7-10 day vacations, and about 4-6 long weekends every year. We had hoped to get down there more often, but various family illnesses and deaths have had us going elsewhere. Sigh.

The thing is, we bought it planning to retire to it. We did rent it out the first 2 years we owned it, but the hassle of broken items, housekeeping not coming in, house left unlocked, made it so not worth it.

Neighbors in our water access/view/front community have chosen to build a home in the vacation area, and rent where they work, also planning to retire to their vacation home.

We are still planning to retire to it, and we recently had it assed for resale value, and it has doubled in value in 6 years. We couldn't afford to buy it now. We're 57 now, retirement planned (hoped) for 5 years from now.

I like that idea of owning a vacation home and renting a home where you work!!!....Though that won't work until the kids are gone,lol...

We bought our vacation home in FL in 2/2007. Purchased it brand new and we have been in it for a total of less than 20 days over the past 18 months.

We could have put our money in the bank @ 4% and rented a comparable home for a lot less money.

But, we know it's ours and we can use it anytime we want and without any advance notice.

If you have excess cash, you do what you think is a wise investment at the time (or spur of the moment....:-)

You are right about being able to rent for ages for less than owning a vacation home. We visited Hawaii for 25+ years and never planned to buy there. Then we had a rental property in Illinois sell in 2000. We were facing a huge capital gains tax, so we did a 1031 exchange and bought a vacation rental condo on Maui.

The condo nearly tripled during the boom and even now is worth more than twice what we paid. There isn't a lot more desireable 'ocean view' property available.

We are there for a month (saving us $5K) and it's rented a good part of the rest of the year. It carries itself. It's been an easier place to 'landlord' than any long-term rental we've owned. We don't have to take pot luck on a rental and we store some clothes etc. there. Our airfares are a tax deduction. We have no plan to retire there. So far it's just been an all-around great investment.

Remember Ray Kroc (McDonalds) saying he wasn't in the food business, but in real estate?

It's their money. They can do as they please.

We had family friends who built a several million dollar house in Isle of Palms, SC years ago. They built with the intention that it would be their vacation home until early retirement, at which point it would become their full time house. They knew that it would be a lot of "waste", but didn't want to rent the house out (and rental houses of the same size/location were getting over $100k a year) because it could potentially end the sudden weekend getaways and they wanted it to be their home, not something that others were using.

Health problems (and a 4+ hour drive from their main residence) prevented them from going down often and a few years after they built it, they began renting it out because they didn't want to feel like it was being wasted. After a couple of years of dealing with showing up to a dirty house (which the several rental companies should have been taking care of), things constantly being broken and going "missing" and of maintenance issues that the rental company were paid to take care of not being completed, they sold it. They said that even if they had just stopped it from being a rental that it would never feel the same - especially after some of the items renters left. Just because it went for a huge sum weekly didn't mean the renters had any class, unfortunately.

Hobbies can be expensive with no chance of getting any financial return. Look at the vacation house as a type of hobby and it may make more sense. Yes, it's a lot of money spent but if they are getting enjoyment out of it and can afford to spend it then more power to them. And as far as hobbies go, even in a declining real estate market, I'd view a vacation home I go to once a year as more financially wise than a brand new $1m+ boat.

We bought our vacation home 10 years ago, with the intention af retiring to it. Even tho some years it seemed it was a money pit (new roof, new furnace)and we couldn't use it as much as we wanted, we're retired and living in it. Best darn investment we ever made! Who cares that we were house poor for a 8 years, living on the lake is the best!
Kathy G in MI

We have friends who went in together on a vacation home. They rent it out a lot and break even on it I think. Best of all, it's their getaway from stress for a few weeks every year.

My biggest problem as we discuss the possibility of a vacation home,is the fact i could never rent it out,never..so it becomes too large of a finanical burden vis-a-vie usage....The worst homes command 500k in the desirable areas,500k buys you a headache,or better yet, a migraine

It depends what the market is doing where the vacation rental homes are. Vacation homes sell much easier than primary residences if in the right place.
We've got two properties on the same lake. We had the one for a long time and when the second behind us came up for sale we bought it. The two properties together are worth more than they are individually.
We've got grown kids and grandkids in the area. The two places get used during the summer. We tried renting them out BUT it's a huge hassle. Renters can be not only be slobs but brutal on a house and it's contents. It's just not worth it.

I'm sorry to read that some osting here had bad experiences with guests. We'd never owned a vacation rental before the Maui condo, and I pictured the Guests from H*ll -- but it never happened. In seven-plus years we had to collect damages from two guests. (Actually the agency we employ to look after our condo and our giests did the collecting for us.)

One guest (Samoan, I believe) lit a fire ON our Corian countertops in the kitchen; tops had to be refinished and some painting done. Another guest removed a large print in a koa frame.

Most of our guests are there for a week or two. Some for a month. It isn't the kind of condo resort that draws the 'party hearty' crowd.

I do have a complaint, as of receiving the July electric bill: $436 for 22 days occupancy. Hawaii has about the highest rates in the nation, and guests are not always good about limiting their use of A/C.

In 2003 we had the virtually unheard of opportunity to buy a house on Lake Crescent inside Olympic National Park. Houses inside the park almost never become available on the open market; the Park Service offers willing sellers so much money that most people can't resist and sell to the feds. As a result, every year, there are fewer properties on Lake Crescent that are owned by private individuals. Due to a bizarre set of family dynamics, our house became available. It had been owned by an old logging family and was built of knot free old growth, virtually priceless, cedar. We stood on the dock looking at the place with our jaws dropping and bought it then and there for cash.

It was the best investment of our lives. The house has not only tripled in value, it has been a very lucrative vacation rental. Since we live only half an hour away, it has been no problem dealing with rentals, turnarounds, and the occasional repairs. Not only that, but the Park Service bought the two properties next to us and removed them, so we have more room, along with the knowledge that our house has become even rarer.

My advice to potential vacation owners is to look for something in an area that cannot be further developed. Hold out for a rarity that will become more precious as time goes by. Don't try to be long distance landlords. We benefit by being close by in case of trouble; we can meet every one of our renters, and we have a wonderful group of housekeepers, plumbers, electricians, pest controllers, and carpenters we know and trust.

Also, if you go the rental route, go for the luxury market. Keep your place in beautiful condition. Provide the best linens, bedding, flowers, appliances, etc... Scrub, scrub, scrub after every guest. We wash every blanket and duvet cover. Charge accordingly and make sure you get a good damage deposit. People who plan ahead and are willing to pay a lot for a happy vacation experience are likely to treat your place well.

I hope that those of you who own vacation homes and those of you planning on buying a vacation home with the intent of later making it your primary residence are aware of the recent change in the capital gains tax treatment of such moves. To help pay for the big housing bill that passed last month, Congress changed the rules so that some of your gain will be taxable if you convert your vacation home or rental unit to a primary residence after 2008.

As you no doubt are aware, previously you could sell your primary residence and take up to $250k/$500k profit tax-free as long as you lived in the place for two of the preceding five years leading up to the sale. You could then move into your vacation home or rental property, live in that home for two years, and then sell it tax-free even if you had owned it for many, many years and it appreciated most while still a rental or vacation home.

No more. Now, you'll have to pro-rate the gain based on the ratio between nonqualified use - the time the property is used as a vacation home or rental unit after this year - to the total amount of time you owned the property.

The tax-law change is even more significant if you buy a second home after 2008. In that case, NONE of the time it is used for vacations or rental income qualifies for the tax exclusion.

Those folks make very smart investments if they currently have $500k-$800k in equity.

If they had rented instead of bought, they would have $0 in equity.

Also note the tax deductions they have been taking over the years for the vacation homes. Plus the enjoyment (priceless memories).

Good for them. That decision to buy long ago has accumulated wealth and enjoyment for them.

sweet tea, i said equity, not profits...i am certain you know the difference...While i am certain there are profits on 1 or 2 of the homes, it even makes more sense to "cash" out for them...The other 2 friends purchased at 2006 prices,put 500k down,so the equity is there,but definitely no capital gains...
and i am sure you realize that putting a downpayment of say,200k down,would result in some form of interest accumulation,or capital gains if NOT used as a downpayment if they RENTED, but you know that...

Kiplinger's has an article about vacation homes.

A link that might be useful:

Vacation Homes on Sale
www.kiplinger.com/magazine/archives/2008/08/vacation-homes-

The equity for the folks that "owned them for years", as you said, is likely due to massive capital appreciation. I bet the properties have tripled in price for those that owned them for 10+ years.

Don't know about the rest of the country but in New England camps (vacation homes to the rest of the US) are pretty deeply rooted in people's lives. I don't think renting would ever appease that desire for a "camp". It's not about one being financially better than the other...it's about generation to generation going to the same place year after year. It's about the family gathering for the ritualistic summer vacation. Many New England vacation homes are seasonal & boarded up 8 months of the year even though the expenses are year 'round. Real estate values go up...they go down. New Englanders don't sell their camps; so it doesn't matter.

Renting just wouldn't be the same experience. :)

/t

We have a house at the NJ shore and we simply enjoy owning it. It's a second home to us. Is it the smartest thing we could do with that equity? No, not by a long-shot. Of course the reality is that many people here could be doing smarter things with their money than spending it on things like cars and homes that are much larger than they "need."

My RI mom loved to talk about 'going to camp', which was not her own family's place, but that of a dear friend. I was an adult before I realized the camp didn't have an old Indian name. It was called 'Camp Tacomta'. LOL

I don't think of vacation homes as an investment. They are there for pure enjoyment only. Doesn't matter if you only get to use it once a week in the summer. As long as it is available that one week it is enough. Just like I don't think of our own primary home as an investment. It is a home for my family, period. NancyLouise

Having recently rented a lake home for a family vacation, I realize how much planning, packing and bringing "vacation stuff" is involved. This (making sure we brought all the needed stuff) was the biggest hassle that we encountered with the rental. Then it was a big event to pack it all up and load it into the vehicles for the trip home. Then unload your vehicle once you get home.

Fishing stuff, swimming stuff, boating stuff, lawn chairs and lawn toys, cameras, bbq and cooking and eating and drinking related items, extra pillows, blankets and towels-in case the rental didn't have enough, books, flashlights, radios, vacation related clothing and food, maps and guides of the area, etc.

For folks that own the vacation homes, they can leave most needed items at the vacation home instead of having to pack the vehicle full of items. This is major.

What a lot of the replies seem to misunderstand is that,imho, if you don't utilize the vacation home it isn't worth owning..Nancylouise,i agree 100% about a primary or vacation home not being an investment(unless you rent it).

I would love to own a vacation home,but considering the costs(500k-1m) and the actual time i'd be able to get there(several weeks and some weekends),it doesn't make sense..Then throw in the secondary costs of ownership,utilities,taxes,association fees,and it becomes more obvious that renting is a better idea...

For those who own 2nd homes, what is your annual carrying costs(mort/taxes/utlities,etc) and how often do you get there? How long a drive from your primary residence, and if you would(and some would prefer not to)what is the value +- of home

As I said earlier in the thread, I agree with you that it doesn't make economic sense to own a vacation home you don't use often unless you rent it out to at least break even.

We bought our Maui condo as an investment that we could also use for a month every year. It is convenient to be able to pack light becaise we store some things at the condo. It's nice not to play 'condo roulette'; we know we'll like the place -- no surprises. It saves us $5K we'd spend to rent and we get a break on airfare-as-tax-deduction.

We own outright (no mortgage). We pay a Maui agency to provide cleaners and garden maintenance; check guests in and out and respond to any guest problems; inspect for damages; pay our utility bills and provide annual report for our accountant.

There are association fees, RE taxes, insurance, cost of an internet ad on VRBO, accountant's tax prep fees, maintenance (painting, etc.) and replacements (linens, appliances). I don't know what my time is worth, answering inquiries, making bookings, collecting and depositing payments. (Obviously it doesn't take a LOT of time or I wouldn't be on the forum so much! LOL)

With 85% occupancy via direct (non-agency) rentals, plus our $5K vacation savings, we're making four percent on invested capital -- or you could say we're losing whatever percent greater than four that the capital could be earning.

The property has more than doubled in value in seven years. It had nearly tripled at the boom's high point. Tomorrow...who knows? (But we do know where we'll be vacationing in February.)

chisue, thanks for shedding some light on this subject..The key for you is "renting", something my friends don't do, and something i couldn't do either...It works for you, and thats great...It appears it isn't a financial constraint because of your renting it out.I hope you have continued success!!!

Sweet Tea, you are renting the wrong places. All my renters need to bring are food, clothes, laptop computers, and sunblock. I provide everything else, including bathrobes, lawn furniture, BBQ equipment, soap, extra pillows and blankets - you name it. Other high end vacation rental owners do, too. You need to check out what you are getting with the owners before you write the check. Look at pictures. Ask specific questions about linens, cooking equipment, paper products, charcoal, etc... One of my guests needed a blender, for example, so I made sure there was one available. If you do it right, renting a vacation house makes life a lot easier than staying in a hotel. If you do it wrong, you wind up in a moldy shack with holes in the screens and a single sauce pan in the kitchen.

gdognj -- Why wouldn't you be able to rent it out? Restrictive assiciation rules? Or you wouldn't be comfortable?

Our condo is very nicely decorated, but not as deluxe as if we didn't gave guests. (Have to think a little defensively when buying art, for instance.) A key issue for me was to replace all carpeting with clean tile. (The 'ick' factor.)

I don't think we'd have had as smooth a road if we didn't employ the on-site agency. It's more profitable to 'go bare' without an agency, but there are hassles for both owners and guests that way. Getting and keeping good cleaners is always hard. I don't want to hear about a leaking toilet or malfunctioning A/C at midnight Chicago time, and the guest wants a problem solved NOW, not in a day or two.

Obessive-compulsive,lol...Wouldn't like someone living in my home,even if it is a vacation home...I hate it when my kids put their hands on the walls of the back stairway :)
Drives me crazy....

Hmmm. Don't you ever go on vacation? Live in somebody's condo or a hotel room? We've found most people to be as careful as we are. If they aren't, our agency collects for damages and takes care of the problem.

The vacation place you rent out would probably give you less angst than the handprints in the back hall. You're not there to see the prints made. The cleaner takes care of it. You never know it happened.

You need to be careful when deducting expenses for your vacation home/rental property on your tax return. The rules for mixed use properties are complicated. Travel to and from the property is only deductible if the primary reason for the trip is business. That can be almost impossible to establish if the property is a condo with a rental agency handling all maintenance and rental issues.

maggie -- Oh, there's *always* something needing to be done when we are at our condo! We rent direct about 80% of the time. The agency provides bookkeeping for any of their rentals and expenses they pay on our behalf (like utilities or replacing an A/C). They pay a cleaner we select and inspect the work.

Also, the property is in a trust.

We live in MI and have a beach front condo in FL. We only get there about 2-3 times a year but we do rent out "the season" and other times of the year. Does not cover all of our costs but helps tremendously.

We have NEVER had a problem renter in ten years. Most of our tenents are retirees that stay at least one month. We also keep next to nothing as far as our own personal valuables in the place. We have a locked "owners closet" for our stuff but even then, nothing of real value in there.

The best part is our condo has appreciated about five times what we paid for it in the last 9 years.

We could never say that about our primary residence!

stir_fri -- Have you noticed a greater number of Canadian visitors over the last two years? We have. Also, has your condo dropped somewhat in value since late 2006? Any problem with storm damage where you are?

No, we have never had Canadian renters before. In our area (Fort Myers beach) there are a lot of Germans but we have never rented to them either. The only "over-see-ers" we have is a British couple every November.

Our area only had one storm (Charlie). Our exterior condo ground suffered damage (landscaping, carports) but our only damage was torn screens on the lanai.

Our condo has definately dropped in value since the "peak". It is still a much better investment than our Michigan home!

qdognj,

from being a lurker for years, I gather that you view a house as a place to live and enjoy, and not as an investment. I agree. With that in mind (and assuming their income can comfortably support both homes), I have to ask: What is the difference between a home where several rooms are used infrequently (ie formal dining or living rooms), and a vacation home? The address is the only difference IMHO.

ruffian, the diference in rooms that are seldom used and a vacation home is staggering...It costs big bucks to upkeep a second home/vacation home.If you rent,not nearly as much,but as i mentioned few,if any, of my friends rent their vacation homes...Taxes/utility bills/commuting costs/etc not including mortgage payments make it a very pricey decision...You become obligated to spend any/most of your vacation time there...
Now,i'd rather "blow" 100k in a backyard paradise that could be used any minute of any day,then have a second home at 800k, that i couldn't get to in less then 2+ hours and then only on weekends and 2 weeks a summer,but that is just my view

When our home was our vacation cottage (3 hours from old house) DH did not want to rent it out. I disagreed, but he was the one working to pay all the extra bills, plus we ahd 4 kids in college then. He said he would rather let people use the place free. Just tell them to leave it cleaner than when they got there and they would be invited back. Wow! It sparkled after someone used it. They all ways wanted to be able to come back. Who wouldn't, lakefront with canoes, kayak and pontoon boat. And no $$!
We wouldn't let anyone use our bedroom, but with two other bedrooms no one complained.
Kathy G in MI

kathyg -- I like your DH's novel idea!

For some a benefit of owning a nice vacation home is the ability to make it available to friends (or business associates).

Our DS and DIL have used our Maui condo twice -- once sharing it with friends of theirs. We've 'rented' it to one of our house-sitters at a rate that covered the state taxes and agency fee. Were we ever to do a house swap we'd be swapping the condo, not our permanent home. Employing an agency to look after the condo and our guests is key to my comfort in owning a vacation rental.

qdognj - I admit that it's a staggering amount of money and that the upkeep is substantial. My sensibilities wouldn't allow me to do it because I'm of the same mind as you. It would be so much easier to book a vacation, a nice vacation, anywhere in the world for those annual costs and still have change in the bank. I wouldn't have to worry about hurricaines, rising insurance or taxes, etc. But it's still no different from buying way more house than one needs - they can afford it and it gives them pleasure.

Now, if they are using their vacation home as an investment, if it's being done at the expense of other important financial goals, or they just can't afford it, then that's a whole different ball game.