Should You Invest In A Vacation Home? – Part 1

A lot of people have asked me that question so I have put together this article that covers in detail all the points you’ll need to consider before you purchase a vacation home as an investment. Most of the following information your realtor will never tell you and if you ask them about any of this they will greatly downplay it or conveniently ignore the question. You won’t want to miss any of this 3 part article so be sure to follow the instructions at the end of each page. After reading this you’ll have much more information than your realtor wants you to have. So here goes.

Many people, including us when we purchased our first home, think that if they owned their own vacation home that they could rent it out to other vacationers, and would at least cover the cost of the investment as well as most of the cost for their own vacation time. And that’s what many realtors will try to sell you on when you walk in to their office. What they don’t tell you is what it will cost you to rent your vacation home.

Here is a brief list of regular expenses you will incur for your vacation home:

1. Mortgage (principle & interest)
2. Mortgage insurance
3. Property tax
4. Home owner’s insurance
5. Phone
6. Water
7. Sewer
8. Electric & Gas (if you have gas)
9. Management fee
10. Lawn service
11. Pool service
12. Pest or termite service
13. Cable TV or Satellite service
14. Home owner’s association fees
15. Other

In order to determine your costs and what you should rent your home for, you will need to follow a formula.  The examples and figures below are for demonstration and comparison purposes only.  You will be able to download a worksheet at the end of this article that will help you determine your breakeven point and what you should rent your vacation home for.

Let’s say you purchase a 4 bedroom, 2 bath home with private pool near Disney World with a purchase price of $300,000. Let’s also say that it is already furnished so you are ready to rent it out as soon as possible. You put $100,000 down which leaves you with a mortgage of $200,000 (you would actually have closing costs on top of the $300K to also consider but for the purpose of this example we will keep it simple.) You won’t have mortgage insurance because you put down more that 20%. You have a 30 year fixed rate of 6% with a monthly payment of $1,200 for principle and interest. Your annual property tax is $2,000 and your annual home owner’s insurance is $1,000. In order to determine what your “break even” point is we do the following math:…..Continue Reading Below

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