Should You Rent or Buy Your Summer Vacation Home?

At a time when more people are turning to Airbnb to rent vacation homes, often for a fraction of the cost of renting a hotel room, the question of should you buy or rent your vacation home comes to the forefront. Would you save more to rent someone’s house for a week or does it make sense to buy a home in your favorite vacation spot?
 
Buying a Vacation Home
 
One of the biggest advantages to buying a vacation home is that it is yours to have. You can go there anytime you want. You will never have to worry about the hotels being booked up because you have a place waiting there for you. And you can decorate it however you want. But there are other very important things to consider when owning a vacation property.
 
Do You Have the Money (or Credit)?
 
Most people who buy a second home are netting over $100K a year or close to a quarter of a million dollars as a couple. If you are not in that income bracket, you can still own a vacation home but it is going to take a big cash payment and you’ll need enough creditworthiness to finance a second mortgage.
 
Paying for the home is only half of the costs. The other half is going to be eaten up by property taxes, maintenance costs, interest on your mortgage, and homeowners insurance on top of those same costs for your primary residence.
 
Do You Want It for the Long Haul?
 
You have about 30 years to pay off the mortgage on your first home. How long do you plan to keep your vacation home? If it’s in a place that you will get tired of after a few years, you’re going to lose money. Always plan on staying long enough to at least recoup your money when you sell the home, keeping in mind that the market may change and you could end up getting less than what you paid for.
 
Will You Rent It Out?
 
If you plan on using your vacation home during the summer but renting it out in the off-season, you still have to factor in the tax consequences. For instance, you can’t claim the standard deduction for a vacation home, so you won’t get a tax break.
 
And when your vacation home is vacant, you still have to pay the mortgage, insurance, maintenance, etc. On top of that, if you aren’t managing the upkeep yourself, you’ll probably have to hire a property management company, which can gobble up at least 15% of your profits.
 
Renting a Summer Vacation Home
 
If you rent a summer vacation home, you have more flexibility to stay somewhere different the next time you travel. You’re not stuck staying in the same place for your summer vacation every year. But it does limit your ability to make a profit from it. Are you even allowed to sublet? And you have no control over rent hikes.
 
To decide which option is best for you, book an extended stay near the place where you are thinking of buying a vacation home. This will give you a chance to get a feel for what it would be like to live there before you put down a down payment.