The Only Time You Should Consider Buying A Vacation Property

I’m on record saying that buying a vacation property is a suboptimal investment. But that’s also because I bought a vacation property in 2007, right before the market really took a dive. This post will discuss the only time you should consider buying a vacation property if you insist on not taking my advice.

Perhaps if I had bought my property after it declined by 40%, today I would be one of the biggest proponents of spending money on something you don’t need!

Alas, I think not because nobody spends nearly as much time as they think they will at their vacation property. It’s also much better to spend less money and have the flexibility to vacation all around the world in multiple new places. So think carefully before buying a vacation property.

However, I will reveal to you when buying a vacation property makes sense.

At Least Your Vacation Property Declines As A Percentage Of Your Net Worth Over Time

The only saving grace about mistiming a vacation property purchase is that the error as a percentage of your net worth should get smaller over time. As your net worth grows by saving, investing, and generating more passive investment income, your vacation property’s weighting will shrink.

Even if you timed your purchase right, the vacation property as a percentage of your net worth should still decline to the point where you won’t sweat it anymore. Instead, what you’ll appreciate most about your vacation property are the memories it will create.

When I bought my vacation property in 2007, my vacation property accounted for about 30% of my net worth. At the time, I thought my income would continue to grow to the sky for years to come. Too bad that did not happen thanks to the global financial crisis.

In 2022, we’re at a similar time period again. Real estate values have done extraordinarily well since 2009. And since the 2020 pandemic began alone, vacation property prices have gone up. But now, the Fed is aggressively hiking rates and real estate prices should cool over the next couple of years.

Although my income crapped out, the vacation property now accounts for less than 5% of my net worth today. I no longer feel the pain of my financial mistake. In fact, I now feel excitement because I have two kids who can finally enjoy it!

But let me share more about why buying a vacation property is not a good use of your capital.

Buying A Vacation Property Is Irrational

For many, buying a vacation property is an emotional decision. I bought my vacation property in 2007 because the Resort At Squaw Creek is where I had taken my girlfriend and now wife on our first long-distance vacation in 2001.

When the Resort condo-converted in 2005, I felt like that was my chance to buy a fantastic memory once I saved up enough money. Eventually, I wanted to bring her back to the condo and propose up in the mountains. I had strong emotions about buying a vacation property.

The two bedroom, two bathroom, 1,050 sqft condo was first sold for $820,000 at the end of 2005. I then purchased the condo for $710,000 in 2007, which I thought was good value at the time.

As part of our passive income retirement portfolio, our vacation condo generates about $500 a month net. Not a lot. But better than hemorrhaging cash like it once did for the first six or so years.

Planning Ahead To Use My Vacation Property

After I proposed to my girlfriend in early 2008 up in the mountains, I began dreaming of one day starting a family. How amazing would it be to bring my son or daughter to play in the pool and go hiking to see the spot where their dad proposed.

But the financial crisis had other plans. In six months, it wiped out roughly 35% of my net worth. My life was put on hold because, at the time, I felt like an absolute failure. And when a man feels like a failure, it’s hard to consider even starting a family.

I held on to my now dear wife for dear life. It was all about regaining what I had lost and then some to feel like I had enough to take care of her and little ones. Thankfully, the market recovered.

Then in 2017, our son was finally born and we didn’t go up for the next two years. We were too busy ensuring his survival at home. The last thing we wanted to do was disrupt his sleep in a comfortable environment with a vacation he wouldn’t remember.

The Only Time You Should Buy A Vacation Property

To my delight, we recently got back from a two-week trip to our vacation property and I’m excited to report it was an amazing experience! I feel great about buying a vacation property now that we all got to share it together as a family.

After a 3.25 hour drive, we pulled up to the Resort, had the bellhop take all our bags, and had the valet park our car in the owner’s lot. Thank goodness he slept for about two hours each way. The convenience was terrific.

Embracing the 78 degree weather, we walked down to the pool and hot tubs every single day. At the pool, we ordered food and drinks and played until it was nap time for all of us. The weather really improved our moods because it’s often in the 50s and foggy during the summer in San Francisco.

After we awoke from our naps at around 3:30 pm, we’d have a light snack and then walk down to the wide-open play area where there are plenty of games for everyone. We’d sometimes even go inside the resort’s 40,000 square foot conference hall to play hide and seek as well.

Family Fun Time At Our Vacation Property

Because our boy had such a wonderful time, it’s made all the financial waste worth it. Now that we have a daughter, the vacation property will provide even more returns. Owning a vacation property at a resort may be more fun for your children than owning a single-family mansion vacation property!

For those of you who have been fortunate enough to make money on your vacation property, every time you visit, I imagine you will feel like you’ve won the lottery if you have children.

I feel that any parent would give any amount of money or time to make their kids feel safe and happy. The Resort made us feel this way every day.

If you haven’t guessed already, the only time you should ever buy a property is after you have children. To children, a vacation property is a wonderland, especially if the vacation property also has a pool and other amenities.

Another thing. The best time to own the nicest home you can afford is when you have children too. This way, you can spread out the usage of your nice house across more people. So if you want to have a big house with nice amenities, decks, and a big backyard, the time to do it is when you have kids. After 18 years of raising them, then you can consider downsizing as they leave the nest.

We love resort vacations because once settled, we don’t have to go anywhere. It’s easy, just like going on a cruise. All the food, entertainment, and accommodations are right there. Once at the resort, we don’t have to worry as much about safety either because there’s staff constantly looking out for you and your family.

Your Vacation Property Provides Familiarity, Which Is Wonderful

Buying a vacation property is wonderful for the familiarity it provides. It’s really nice to be able to come home to a familiar property and have all your basic belongings, like your swim trunks and hiking shoes there waiting for you.

Over the next 16 years, I can’t wait to do the following at the vacation property:

• Take our boy on a hike to show him where I proposed to mom
• Go sledding
• Try river rafting
• Mountain bike to the lake
• Go jet skiing or water skiing
• Teach him how to snowboard or ski
• Show him how to golf and play tennis
• Try to fly fish together
• Teach him how to work remotely

Focus On The Vacation Property Lifestyle

On paper, owning a vacation property is a suboptimal move, even after putting down a recommended 30% or greater. But don’t forget that the reason why you save and invest so aggressively is to improve the quality of your lifestyle. Never forget the end goal!

Once you have a family, the value of your vacation property will increase immeasurably. For me, that increase feels like 3X. I feel so rich because seeing his joy is a dream come true 12 years after purchasing the property. There was a point when I thought I might never have a family.

Of course, I could re-create these experiences by renting a place at my resort. But it just wouldn’t be the same because most of the time I’d be renting a different apartment property. Further, there’s this indescribable feeling of having a property of your own that nobody tells you.

This may sound mundane, but there’s something priceless to coming home to your own place and opening a drawer full of your own underwear! (owner units have a private wardrobe and lockers for skis and snowboards)

Mountains Of Memories At Our Vacation Property

In 20+ years, I hope my son will look back fondly at all the great memories he had with his mom and dad up at our vacation property. Then, maybe one day, he’ll take up the love of his life there and make new memories of his own.

From now on, we plan to spend 45-60 days a year up at our vacation property. When our son turns five, we’ll start spending around 30 days in Hawaii so we can diversify our vacation spots between Lake Tahoe, Honolulu, and San Francisco. Then once he turns 10, we’ll start doing some long-term international travel so he can appreciate the trips more.

Planning ahead for your desired lifestyle is worth it. Just don’t buy your vacation property before having kids! Rent one instead and invest the difference. There are so many great ways to vacation nowadays thanks to the internet.

Recommendation To Build More Wealth

Instead of or in addition to buying a vacation property, strategically invest in low valuation, high net rental yield properties around the country through a specialty REIT or through Fundrise.

Fundrise is the top real estate crowdfunding platform today with over $3.2 billion in assets under management. You can then use the passive income generated from your real estate investments to go on the best vacations anywhere around the world. Simplicity is happiness.

CrowdStreet is also a great alternative if you are an accredited investor. You can build your own select real estate portfolio with CrowdStreet. They focus on real estate opportunities in 18-hour cities where valuations are lower and growth rates are strong.

Personally, I’ve invested $810,000 in real estate crowdfunding in the heartland of America. With work from home a reality, it’s only logical Americans will spread out to lower-cost areas of the country. I’m bullish on the housing market for the next several years.

The Only Time To Buy A Vacation Property is a Financial Samurai original post. For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. To get my posts in your inbox as soon as they are published, sign up here. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.