Should You Buy a Retirement Vacation Home?
Buying a vacation home in retirement sounds tempting, but it’s a decision packed with financial and practical considerations. Here's a clear-eyed, expert view on whether this investment aligns with your goals and lifestyle.
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Why Do You Want a Vacation Home?
Before diving into the financials, reflect on the real reasons behind your desire for a vacation home. Do you see it as a place to build family memories, host gatherings, or enjoy solitude in your retirement years? Perhaps you imagine yourself spending summers at the lake or winters in the mountains.
Beyond the emotional pull, ask practical questions:
Will you visit often enough to make the cost worthwhile?
Are you prepared to spend the time and energy needed for upkeep?
Can you see yourself returning to the same place year after year?
A vacation home should be an extension of your lifestyle. If you value variety in your travels, locking yourself into one location may not be ideal.
Financial Realities of Owning a Second Home
Owning a vacation home comes with steep costs, and they go far beyond the purchase price. Start with upfront expenses like a down payment, property taxes, and closing fees. Add the ongoing costs of a mortgage, utilities, maintenance, and insurance, and the bill climbs quickly.
Then there are the surprises:
A sudden roof repair.
A malfunctioning HVAC system.
Increased HOA dues or unexpected special assessments.
Even small expenses like cleaning services and lawn care can add up. Retirement often means a fixed income, making it critical to evaluate whether these recurring costs fit comfortably into your budget.
Renting Out a Vacation Home: Is It Worth It?
Renting out a vacation home can offset costs, but it’s not a guaranteed solution. High season versus off-season rental rates can leave you with large income gaps. Vacation property managers often charge steep fees, taking as much as 30% of your rental earnings.
Other factors to consider include:
Marketing and managing bookings.
Handling tenant damage and complaints.
Paying for higher insurance premiums tailored for rental properties.
Even with all this effort, there’s no promise of profitability. Many retirees find that vacation rentals bring more stress than financial relief.
Benefits of Owning a Vacation Home
Owning a vacation home isn’t just about financial investment—it’s also about lifestyle enhancement. Some retirees see it as the ultimate way to build lasting memories with their families. A second home can offer:
A reliable retreat for holidays and celebrations.
A chance to immerse yourself in a favorite location.
The potential to create traditions for future generations.
Additionally, the property could appreciate in value, adding to your financial portfolio. But the true benefit comes only if you genuinely love and regularly use the home.
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8 Risks of Owning a Vacation Home
Owning a vacation home may seem like a dream come true, but it comes with significant risks that can affect your finances, time, and lifestyle. Here's what to consider before making the commitment.
1. Financial Strain
Vacation homes come with all the financial responsibilities of a primary residence—often at a higher cost. Think about:
Substantial Down Payment: Lenders typically require a larger down payment for second homes, often at least 10–20%.
Ongoing Costs: Mortgage payments, property taxes, insurance, and utilities can quickly add up.
Maintenance and Repairs: Unexpected expenses like roof repairs, plumbing issues, or HVAC breakdowns can eat into your retirement budget.
Unlike a primary home, the potential for income from a vacation home (through rental) is inconsistent and seasonal, often leaving you to cover gaps.
2. Time and Effort
Owning a vacation home requires significant time and effort, even if you’re not living there full-time.
Maintenance: Routine upkeep and emergency repairs demand attention, especially if you’re aiming to keep the property in top condition.
Security: Ensuring the home is safe and secure while it’s vacant can mean installing systems or hiring someone to monitor it.
Rental Management: If you rent it out, you’ll also need to handle cleaning, bookings, and guest concerns—or pay a property management company to do it.
The effort needed to maintain a second home is often underestimated, and for retirees, it may feel like a full-time job.
3. Limited Flexibility
While a vacation home can be a cozy retreat, it ties you to one location. This lack of flexibility can make it harder to travel to new destinations or change plans as your needs evolve.
Many vacation homes sit empty for most of the year, yet you’re still responsible for the costs.
Declining health or mobility in later years may further limit your ability to use the property.
Retirees often find themselves feeling obligated to visit their vacation home instead of exploring other travel options, which can stifle spontaneity and variety.
4. Market Risks
Real estate markets are unpredictable, and a vacation home is no exception.
Fluctuating Values: Property values can decline due to local economic downturns or natural disasters, reducing the return on your investment.
Rental Demand: If you rely on rental income, be prepared for market ebbs and flows that can affect profitability.
Regulatory Changes: Some areas have tightened regulations on short-term rentals, making it harder to generate income from your property.
These factors make owning a vacation home a less stable investment compared to other options like diversified portfolios.
5. Lifestyle Mismatch
Your lifestyle can change over time, and what seems like an ideal purchase now may not align with your future needs.
How often will you use the home?
Who will manage it when you can’t?
Does it align with your long-term goals, like traveling or downsizing?
Many retirees find themselves regretting the purchase of a vacation home because it doesn’t fit their evolving priorities.
6. Unpredictable Expenses
Owning any property comes with unforeseen costs, but vacation homes tend to have additional challenges:
Higher Insurance Costs: Vacation homes in flood zones, near beaches, or in remote areas often have elevated premiums.
Seasonal Maintenance: Winterizing a cabin or storm-proofing a beach house can add to costs.
HOA Fees and Special Assessments: Vacation properties often come with these fees, which can increase without warning.
Having a cash reserve for emergencies is essential, but even that may not fully shield you from financial stress.
7. The Burden of Responsibility
A second home isn’t just a financial investment—it’s also a responsibility. Many buyers focus on the benefits and overlook the ongoing demands.
Managing bookings and maintenance is time-intensive, especially if you aim for high standards.
Even if outsourced, the costs of property management and upkeep can erode your budget.
As Pacaso CEO Austin Allison noted, “The biggest mistake second-home buyers make is thinking only about the benefits and ignoring the ongoing costs and hassles.”
8. Declining Utility Over Time
The reality is that you may not use your vacation home as much as you think.
Phase of Life: While you may visit frequently early in retirement, usage often declines as health and mobility issues arise.
Cost per Stay: If visits become less frequent, the effective cost per night skyrockets, making the investment feel less justified.
Many retirees find it more economical and flexible to rent properties in various locations rather than committing to a second home.
Diversify Your Investments
Adding a second property can diversify your portfolio, but it’s not without trade-offs. Real estate provides an alternative to stocks and bonds, and owning homes in different regions reduces exposure to localized economic downturns.
However, this type of diversification is illiquid and carries significant costs. Unlike stocks, a property can’t be sold quickly or partially liquidated during emergencies. Ensure that a vacation home doesn’t take away your financial flexibility.
Should You Rent Before Buying?
A trial run is often the smartest move before buying a second home. Rent in your dream location for an extended period. This gives you a taste of the area, the upkeep, and whether the lifestyle fits your expectations.
Renting also provides insight into:
Seasonal changes and how they affect the property’s appeal.
Local amenities, neighbors, and accessibility.
Hidden costs you may not have considered, such as snow removal or pest control.
A year-long rental can save you from making an expensive, irreversible decision.
Alternative Strategies
If a second home doesn’t align with your goals, there are plenty of alternatives:
Luxury Vacations: Enjoy the flexibility of exploring new places without the commitment of ownership.
Part-Time Rentals: Use short-term rental platforms like Airbnb for a few months each year to satisfy the desire for a home base.
Invest Elsewhere: Allocate your money to diversified financial products that yield returns without the hassle of property management.
These options allow you to enjoy retirement on your terms while keeping your finances fluid.
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Bottom Line
A vacation home can be a source of joy—or stress. The right decision depends on your priorities, financial situation, and willingness to take on the responsibilities of ownership.
Ask yourself:
Will I use the property enough to justify the cost?
Can I handle the upkeep as I age?
How will it affect my overall retirement plan?
When in doubt, consult a financial advisor to ensure your decision aligns with your goals. Retirement is about enjoying life, and your choices should support that vision.
Reference
Pacaso. (2022). Second Home Attitude Report 2022. Retrieved from https://www.pacaso.com/blog/second-home-attitude-report-2022
Nesbit, J. (2022, December 12). Things to Consider Before Buying a Vacation Home. U.S. News & World Report. Retrieved from https://realestate.usnews.com/real-estate/articles/things-to-consider-before-buying-a-vacation-home
Investopedia. (n.d.). First Mortgage. Retrieved from https://www.investopedia.com/terms/f/first_mortgage.asp#:~:text=Key%20Takeaways,fund%20other%20projects%20and%20expenditures.
Nasdaq. (2024). 5 Reasons You Should Not Buy a Vacation Home When You Retire. Retrieved from https://www.nasdaq.com/articles/5-reasons-you-should-not-buy-vacation-home-when-you-retire