Considering buying a vacation home? I’ve been there, done that since 2007, and I’ve got some advice for you. First off, don’t buy a vacation property as an investment. Instead, buy it for the lifestyle and joy it can bring to your life. Trust me, you’ll enjoy it more this way.
Hold off on buying a vacation property until your first kid is at least three years old. Before that, you’re free to travel the world. Once your kid is three, they’ll start to appreciate and remember the vacation property more.
I once met a retired lawyer at a hot tub party at my vacation property. He told me he’d never sell his property because it’s now a small percentage of his net worth. He plans to leave it to his kids to enjoy. This got me thinking about the future.
When I bought my vacation property in 2007, it was about 25% of my net worth. Now, it’s around 5% of my net worth. As it becomes a smaller percentage of my net worth, I feel better about it. I hope that by the time I’m 63, like the lawyer, the property will be less than 2% of my net worth and fully paid off.
I made a big mistake by spending 25% of my net worth on my vacation property right before the 2008-2009 financial crisis. But there was a silver lining. The financial pain led me to start Financial Samurai in 2009.
The retired lawyer’s plan to pass his property down to his children resonated with me. I’ve always imagined taking my kids to my vacation property during their school holidays. We could go hiking, mountain biking, boating, river rafting, kayaking, and water skiing in the summer. In the winter, we could go sledding and make snow angels. Lake Tahoe is magical.
I’ve learned that the value of a vacation property skyrockets if you can fulfill your vision of spending quality time with your family there. The downside? Our car got damaged while being valet parked. But that’s a small price to pay for the joy the property brings.
Here’s my rule for buying a vacation property: spend no more than 10% of your net worth on it. I feel much better now that my vacation property is less than 10% of my net worth. If you think your income and net worth will increase rapidly, you might stretch your budget to 25% of your net worth. But based on my experience, I wouldn’t recommend it.
Before buying a vacation property, calculate how much you’ll actually use it each year. Compare the cost of ownership to the cost of renting a nice place. Most people can only take 4 – 6 weeks off a year. Only if you’re unemployed, financially independent, or have a location-independent business can you truly maximize your vacation property.
My guideline says you shouldn’t even consider buying a vacation property until your net worth is at least $3,000,000. A vacation property is generally a terrible investment. It’s better to just rent and go on unique adventures instead.
If you want to make money in real estate, consider real estate crowdfunding platforms like Fundrise or CrowdStreet. They offer investment opportunities all around the country.
In 2019, I took my family to our vacation property for the first time, and it was magical. We went again in late October 2020 and in April 2024. The value of our vacation property has increased tremendously now that we have kids. I can’t wait to go up there for the next 12-14 years while the kids are still living at home.
