4 Reasons Vacation Homes Are 'Over' and Not Worth It Anymore
Getting (or keeping) a second home is no longer a first-world problem. It's now a 1% problem.
Millions of Americans cannot afford to buy a first home, and so obviously they cannot afford to buy a second home intended solely as their vacation getaway. But let’s say you’re in the minority of folks who can afford to buy a house and then a second house. Should you go ahead and buy a vacation home?
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Most likely the answer is a loud and resounding “No.” we spoke with personal finance and real estate experts to learn the four key reasons why vacation homes are “over” — and not worth it anymore.
Why Pay All Those Fees When You Can Just Use AirBnB?
One of the most compelling arguments for owning a vacation home used to be “it’s so much more homey and private than a hotel!” — but that argument is pretty much dead now that we have AirBnB and Vrbo. You can rent a well-maintained and cozy home for as long or as little as you want anywhere in the world — and at a competitive rate. For younger people in particular, going the AirBnB route is a far more practical and financially savvy move than buying a vacation home.
“A Gen Z or millennial earner who wants a week in the Smoky Mountains books it, pays for what they use and leaves,” said Zach Cohen, managing partner at Ridge Street Capital. “No property taxes, no insurance, no HOA, no maintenance call at midnight.”
Interest Rates Are Higher on Investment Properties
The sky-high interest rates on home mortgage loans are one major reason why people can’t afford to own a home. And guess what? Secondary residence mortgage rates run even higher.
“Most vacation homes run just about half a million dollars," said Cameron Walker, manager of the agent network at Clever Real Estate, "and secondary residence mortgage rates are around 7.45%, and are generally 0.25% to 0.5% more than primary residence mortgage rates, and have more rigid conditions,”
A Vacation Home Will Not Pay for Itself on Airbnb
Some people buy vacation homes and think they will profit by renting it out on Airbnb when they’re not using it. This strategy once could have made sense. Not anymore.
“The ‘it will pay for itself on Airbnb’ plan no longer works,” Walker said. “The short-term rent market has hit a plateau, and so have the occupancy and rental rates, and more and more popular places have started putting restrictions on short-term rentals. Betting on rental income to pay the mortgage is no longer a good investment like it was only a few years ago.”
You’re Paying $700 a Night To Stay Home
America has a strange relationship with vacation. First there’s the fact that we generally get less paid vacation time than many other developed nations. Then there’s the arguably more abysmal fact that many of us don’t claim what little paid vacation time we do get, because we feel bad doing so — 20% of us to the point of guilt and burnout according to PBS.
We need to be real with ourselves (and our financial planners) about this because when we do the math, we’ll usually realize that owning a vacation home is a form of severe overspending.
“Most owners only use their vacation home three to five weeks per year,” said Eric Croak, certified financial planner and president at Croak Capital. “Take your annual carrying costs and divide it by the number of nights you use the house. You’ll quickly realize you are paying $700 per night to stay in your own bedroom.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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