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November 02, 2010


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"It's not an investment -- we all know real estate can go down"

Huh... Can't you say that about almost anything that is generally considered an investments?

It's not an investment -- we all know stocks / money market funds / gold / mutual funds / etc. can go down.

Timeshares don't take much time. Just money.

If you do the calculations, it is amazing how cheap even top hotels seem in comparison to a second home, unless you spend half your time there (ie snowbirds) but even then it is very expensive and a hassle to maintain two homes.

Even after the housing bust, it is amazing to me how many people are still so eager to buy multiple houses, with the intention of flipping them at a profit to the next greater fool. In my little town of Eureka, California (a tiny coastal town some 5 hours away from the nearest city), median homes still cost over $300,000; there are no jobs to support the economy, but people on welfare own several homes. What is wrong with this picture?

I would say for most common folk living in the middle class a vacation home is not very realistic. I'm sure you could do it if your very pennywise and make lots of sacrifices, but unless you have lots of disposable income its not a reality most of us will face. The middle class is doing good if we can afford to have a decent home, a rainy day fund and a quality retirement plan on top of sending the kids to school and throwing a little fun in there on the weekends.

I was blessed to have a grandmother with a home on Cape Cod. I just bought a 25 foot fishing boat and was down there almost every weekend May through September. The boat is a big enough expense as it is...I can't imagine have both a mortgage on a boat AND a vacation home.

In 1967 our children were 4, 7, and 9 years old. That's when we decided to buy a 1/4 acre lot at Lake Tahoe, CA. The lot was only $4,000 and it was in beautiful, pristine wooded country with the Desolation Valley Wilderness behind us. The nearest ski area was in the village of Homewood about 1/2 mile away and the major ski areas of Alpine Meadows and Squaw Valley were about 10 miles away. We hired a contractor to build us a 3br 2ba 2-story cabin which cost us $11,000. We spent another $1,500 on primarily secondhand furniture so our total investment was $16,500.

In the Winter, depending upon weather and road conditions we drove the 250 miles to the cabin and had great times skiing. In the summers we hiked in the Sierra Nevada mountains that we were in the midst of and enjoyed time at the nearby beaches. During the school vacations my wife and the kids would frequently stay up there while I visited on weekends. We enjoyed all of the holidays such as Christmas, Thanksgiving etc. up there and bonded as a family. Our three children have often told us that these were some of the happiest times of their lives and have sought to duplicate the experience with their families.

My married son owns a condo at Kirkwood ski area in Tahoe (no debt), my married daughter lives permanently at Tahoe (no debt) in a custom home her husband built, and the other daughter, after a divorce and a large settlement 3 years ago, is currently a renter here in Silicon Valley but has a timeshare at Tahoe that was part of her settlement.
We used to rent out the cabin when we weren't using it and it gave us a nice little income. In 1979 after owning it for 12 years, the kids were by then 16, 19, and 21 so we sold it for $90,000 and invested the money in a condo at the beach, cost $125,000, which is only about 25 miles away. We rented it for many years to vacationers and it provided a nice income and a tax writoff and depreciation as income property. The condo is now worth about $600K.

Bottom line - our vacation home brought us great happiness in the period of my life between 33 and 45 while our children were growing up and it resulted in a great investment as well. Even in hindsight I wouldn't change a thing.

Maybe things are a lot different today but back in those days my experience was the norm rather than the exception and several of my colleagues at work did much the same thing.

Second homes are an expensive luxury. Most people can't afford them and shouldn't buy them.

I don't think they're a horrible idea if you have the money to afford one. Of course that means not spending too much and being smart about it. My uncle bought a small lake cabin in the 1960's and remodeled it, it has appreciated 1500% since then. HIs annual costs are around $2000 total. He made a pretty good investment and has had a great vacation home for 5 decades.

Timeshares are not very comparable to 2nd homes. Timeshares are basically a ripoff. 2nd homes are expensive luxuries. Its like comparing a broken watch to a rolex.

I own (if you have a mortgage you dont own anything by the way, the bank owns it) a vacation home in a ski town. Its not an investment to me. If its value goes to zero, it goes to zero. For the maintenance cost of the home, I could stay at the Ritz for 2 weeks during peak season. Its an expense/ a liability and I am fine with that.

Does this make my decision a financial mistake? I would have to argue no. I am not consuming under some illusion that my spending is a justified investment. I fully understand the costs and I choose to accept them in exchange for the benefits. People error in this choice when they claim their spending is 'investing'.

I once owned a vacation home on the ocean. it was not an easily accessible location for me. I found myself avoiding other trips because I felt compelled to spend time at the vacation house. People who own vacation homes will often find their free time controlled by the stupid home. "Id love to go do x, by I need to go to the stupid vacation house I own/justify owning it."

Man, oh man, I am happy not to have a vacation home. My honey do list at our regular digs is long enough, I can't imagine doubling it. My neighbors, who were frugal before it became cool, have a small vacation cabin on a beautiful lake in a neighboring state. So far, the enjoyment has balanced out the extra work and expense for them. He has mentioned the prospect of selling it lately though, says that he's not as young as he used to be. Aren't we all. I admire them for being able pull it all together though.

I think a second home can be worth the expense, but *only if it gets substantial usage.* At my insistence, my elderly parents recently unloaded their beach property--reluctantly at first, but now very happy to do so. The condo fees, property taxes and utilities were well over $1,200/month, which is almost like renting a place they practically owned free-and-clear with only a small mortgage balance remaining.

Ownership was cost-effective for years only because it was owned and usage split among three couples, and it got a lot of use only because of that split. Being located three hours from their "regular" homes, no one owner wanted to invest that sort of time to use it (and be away from home) every single weekend--so going down every third week was just about perfect. Put together, they had just the right amount of usage they wanted for 1/3rd of the price of owning it solo.

Only in the last few years did the long drive become a difficult, unattractive proposition for the elderly owners and the place sat vacant for extended periods. Finding compatible ownership partners may be a challenge, but this definitely lessened the financial sting of a place that most would otherwise consider to be a "money pit" for a solo owner. Hope some can gain from this.

I think new cars are "financial killers" but I have read that you buy them because you want to and can afford it. I don't buy new cars but I do own a second home on a lake because I can afford it. Would I trade time at my lake home for riding around in new cars? Not in a million years.

Mr. ToughMoneyLove and Tyler --

You two are correct -- if you can afford it and choose to spend your money that way, then there's no problem IMO. But this post is written for (what I'm guessing is the majority of) people who can't afford it and yet are still buying second homes...

In yesteryear, middle to upper middle class families could get a second home - or at least a vacation home of sorts. Here in the Chicago area, I have met plenty of very middle class people who have family cottages in Wisconsin - or sometimes even Michigan - where they spend summer weekends. These have been passed on from prior generations.

These days, I don't see middle class people actually buying these things. Maybe a few inherit a modest home - but that's it. Unless someone is truly wealthy - with significant assets/cash flow, it's senseless to buy a vacation home or condo. It makes more sense for most people to take vacations instead. Imagine the middle class people who recently bought
"vacation" condos in Florida or Vegas - how do they feel about now?

As for timeshares....forget about it! I'm not letting a snake oil salesman talk me into a money drain like that.

I had a vacation home (a small 2 BR cabin) in northern Michigan during the decade that my family lived in Chicago. It was awesome. The total cost of upkeep was only about $1,000 annually and we would use it about 5-6 weekends a summer w/ sometimes a full week trip in there. We co-owned the cabin with my brother and when we moved to the east coast a while back and just gave him my share of the property.

Houses are money sinks from a cash flow perspective. You have taxes, insurance, upkeep and fees if part of a condo or gated community. Therefore having a 2nd home would be worthwhile if there was another guest or family member living there or you could spend 4-6 months there. If it is just for a few weeks a year then I think you are better off taking your vacations in different places- that's what my wife and I like to do.

In the past 12 months we have been to Australia, USA, Canada, Germany, Switzerland, France. We will be going to Malaysia, Hong Kong, Singapore and the Maldives during the next 6 months- all for far cheaper than paying property taxes and fees on a 2nd home.

Stories like the tale from Old Limey are good reasons for having a 2nd home- if you come across something very cheap and are planning on taking repeated trips to the same place it could be worth it. But I suspect prices and taxes have risen quite a bit since the time when that was a good value.


i own several properties but they are all for rental purposes. though i have the capability to, i refuse to buy a "second" home that remains vacant for the most part and which i only use now and then. i am better off renting the type of property i want, when i want, without any long term commitments.

My father (not rich, but frugal) bought land in the mountains about 20 years ago for $10K cash, and they built a cabin on it for another $10K cash about 15 yrs ago. The cabin is used almost every weekend throughout the year by one or another of the large extended family & friends. Dad actually enjoys the upkeep which he does with help from various family members (mainly splitting wood--the cabin has no utilities) now that he's sold the family home and moved into a condo in a retirement community that has zero upkeep. The cabin is now worth easily $300K--definitely a good investment, and invaluable for the family time & memories it has produced.

He also owns time shares at a ski resort and the ocean--the resale value on these is more iffy, but he or other family does use them for all the weeks they are available every year.

Dad is healthy and active (still downhill & cross country skiis despite being over 80) and I think having these properties helps keep him that way. His skiing buddies are all a generation younger than him. I hope I inherited that constitution!

Vacation properties in my part of the country are a lot more expensive, but I am considering various options.

I think that a well-chosen, modest vacation place can add a lot to a family and an individual's retirement years.

It'd be nice to have a second home to escape to from time to time, but I wonder what else I could do with all that money. Especially if I'm not using that second house very often.

My two vacation homes generate a decent profit in rental income and tax deductions when I'm not there, i.e., second homes aren't financial killers.

Though the hassle of dealing with unpredictable renters and unexpected repairs may make it preferable to invest in other areas.

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