If you're in the market for a vacation property you will likely have to decide between purchasing a single-family home or a condo. However, what if you have enough money to buy a single-family mansion for $10+ million versus a condo at a luxury resort for $500,000+? I used to think a single-family mansion for sure, but now I'm not so sure.
For the record, I think buying a vacation property is a suboptimal financial decision. Most people won't use the property enough to justify its purchase price and ongoing costs. While your vacation property could help you generate additional passive income, however, it does require extra work and time.
Do you really want to give yourself more work for a property that's supposed to help you relax? I don't.
If you insist on buying a vacation property, buy one for lifestyle reasons first and economic opportunity a distant second. This way, you'll buy more responsibly. You'll also have more reasonable expectations about your vacation property's place as part of your net worth.
Our Vacation Property Condo
We have a vacation property at Everline Hotel At Palisades Tahoe in Lake Tahoe, California. It is a wonderful place to bring the family. However, I probably would have saved over $200,000 over the past 15 years had I just rented hotel rooms or private residences instead of buying.
Alas, there's no turning back time. I can only share my experience with those of you itching to decide whether to buy a vacation property or not.
On our latest trip to Lake Tahoe, where my car got bashed under valet's care, I came to a surprising realization. Owning a much cheaper condo at a luxury resort may be better than owning a mega-mansion vacation property!
The Vacation Property Network
One of the reasons why we enjoy living in San Francisco is due to the network of friends we've created since 2001. During this time period, our friends have gotten older and wealthier. Hopefully, yours have as well. Like us, most of my friends have ended up purchasing vacation homes.
Since we can only live in one place at a time, some of us have offered the use of our vacation properties to others. This way, we keep our vacations more interesting. Further, if a vacation property is often underutilized, it's nice to be able to offer up your place to friends and feel like we've not wasted too much money.
Over the past 21 years, one friend has built more wealth and lived it up way more than the rest of us. Let's call him Hiro. Hiro ended up buying a slice of heaven in Napa Valley, only 1.3 hours away from San Francisco. The property is most likely worth between $16 – $18 million.
My family is always welcome to go to Hiro's Napa Valley vacation property whenever it's available, which is about 85% of the year. However, we only go once every year or two so as to not come across as moochers.
We would happily let Hiro and his family stay at our vacation property at The Resort at Palisades Tahoe. But the problem with that is that Hiro's property is worth at least 30X more and is 7X larger! He has the single-family mansion for a vacation property.
As a result, Hiro and his family wouldn't stay at our vacation property even during the most prime of times. They want to maintain or increase their standard of living while on vacation, not decrase.
There's no amount of money or hookups I could offer to Hiro to make our trade equal. So I stopped trying years ago. Instead, I've just continued to be a good friend.
The Single-Family Mansion Vacation Property
The mansion vacation property is spread across 20 acres. The property is completely private and requires you to pass through a gate to get inside.
There's a pool, a hot tub, tennis court, fruit trees, and nice views of the valley. There's even a writer's hut for me to write the next great book, if I have another one in me.
The great thing about large houses on big grounds is that it provides plenty of entertainment for the children. They can run around freely and burn off their endless energy. Further, we can have so much fun playing hide and seek!
For food, we bring our own and cook, which is much easier when there's a large kitchen. To mix things up, I'll drive down the hill to pick up some takeout. When we get bored, we'll take a 30-minute drive to train town in Sonoma City. Then we'll go for a picnic lunch at a nearby playground after.
The mansion vacation property is incredible. If we were to move to Honolulu, we would no longer have such access. But hopefully we'd make new friends with oceanfront properties!
The Resort Condo Vacation Property
The Resort At Palisades Tahoe is a “AAA four-diamond resort.” It has three pools, three hot tubs, a water slide, four restaurants, a big gym, a spa, fly fishing, golf, ski-in/ski-out and lots of places to hike. Once you get to the resort, you don't have to go anywhere else if you don't want to.
For a family with two young children, staying at a self-contained resort makes life easy. We can eat at the pool if we're feeling lazy or call for room service if we're feeling really unmotivated. The Six Peaks Grill has world-class food, which has never disappointed us in the past 21 years.
There are plenty of activities so the kids never feel bored. Instead, they are perpetually excited as we were when we first start coming here in 2001.
Although my friend's mansion is much larger than our 1,050 square foot two-bedroom, two-bathroom condo, the Resort has over 40,000 square feet of common indoor space. Then there are the 650 acres of outdoor space at The Resort to explore. As a result, the kids have much more space to roam around.
It's certainly nice to live in a bigger home. However, our relatively small two-bedroom for the four of us encourages us to go outside and enjoy the amenities more often.
Related: Taking A Vacation With Family During The Pandemic In 2020
Biggest Downside To Owning A Resort Condo
The biggest downside to owning a vacation condo at a resort is sharing public spaces with strangers. We purposefully went from Monday through Friday in August to avoid crowds and earn maximum rental income over the weekend. It wasn't too busy.
However, the pools got packed Friday afternoon and Saturday morning when we stayed one more night due to my car incident. Hence, unless you've got a flexible schedule, you'll likely always go during peak time periods where there are the most people.
Another downside includes living in a condo building, which is louder. You'll sometimes hear kids screaming down the halls, usually with glee. Other times, TVs are turned too loud or there is some other type of commotion that may wake you up at odd hours. When you're used to living in a single-family home, living in a condo can feel like a downgrade.
The final downside is paying monthly HOA fees, whether you use the property or not. However, these fees should be baked into your budget beforehand. They are not surprises.
Related: The Only Time You Should Consider Owning A Vacation Property
Biggest Downside To Owning A Mansion
The biggest downside to owning a mansion vacation property is the cost. The more land you have, the more you have to maintain. My friend has a gardener come twice a week to gather up the leaves, trim the hedges and trees, and pull the weeds. The gardening bill is at least $2,000 a month.
A large house requires more upkeep, which means more headaches. Then there is the higher property tax bill and other fees.
However, if you can comfortably afford a mansion vacation property, then cost is not the issue. What's challenging is how to fill the house with enough friends and family when you want company.
The bigger the vacation property, the lonelier it can feel. Hence, most friends with large vacation properties are always inviting friends over. They have guest houses specifically so they can share their mansion with friends.
Although sometimes, it can feel nice to just getaway from it all.
Of Course The Mansion Vacation Property Is Better
If I had the opportunity to trade my condo vacation property for my friend's mansion vacation property, of course I'd trade in a heartbeat. My net worth would instantly increase by at least $14.5 million!
I also love how my friend's vacation property is only 1.3 hours away versus 3.5 hours away for our property. 1 – 1.5 hours is the perfect driving distance for midday naps for my kids. The distance also makes weekend getaways easy.
However, once we finally get to our vacation property, we have a lot of fun. It's just the trek up there that takes more energy to overcome. With the fear of COVID diminishing, there is also less anxiety being around more people.
But what really makes me think a vacation condo at a nice resort is better than a single-family home vacation property is what my kids think. I asked them which one is better and they said the Lake Tahoe condo vacation property.
Then I asked them several days later just to double check, and they reconfirmed. Maybe they have a recency bias, however, it sure seems like they had a lot of fun on our last trip.
Young Kids Are Less Biased By Money
Young kids tend to speak the unfiltered truth. We adults, on the other hand, are often swayed by money.
If we pay $500 for a dinner at The French Laundry, of course we are going to say the food was amazing, otherwise, we might feel silly. But sometimes, an $8 cheeseburger with a $5 milkshake tastes even better than an 8-course meal that takes three hours to consume.
But with little kids, they have little concept of money. They don't know how impossible it is for most people to accumulate enough wealth to pay for a $15 million mansion versus a $500,000 condo. Therefore, they simply decide on the type of property that brings them the most joy.
Hence, a good test to see which type of vacation property is better is to try both, if possible, and ask your children. Then go ahead and ask your little ones about anything else that needs an unfiltered opinion. Some questions that come to mind include: Who is the nicest teacher you've met so far? Who is the meanest kid in your class? Does my dress or shirt make me look fat? What else can I do to be a better parent? And so forth.
The older I get, the more I like to pay for convenience. Paying a monthly HOA fee to maintain everything so we don't have to feels like a better bargain each year that goes by. If you own a vacation property, the last thing you want is for it to feel like a burden.
Thanks to my children's opinions, I feel great about owning a much cheaper vacation condo. There's always a little bit of real estate FOMO to battle. Further, I didn't know exactly how life would turn out 15 years after purchase. All I knew was that I wanted an affordable place to bring my family and make fond memories.
If I could afford a $15 million vacation mansion, I would likely buy a $3 million vacation condo at a resort and reinvest the remaining $12 million in private real estate investments. This way, I’d hopefully generate $600,000 – $1.2 million a year in passive income. It’s nice to live light!
Reader Questions And Action Items
Loading ...Readers, what are your thoughts about owning a vacation property at a resort or a standalone single-family house? Isn't it funny how our kids can speak their truths without needing to factor money into the equation?
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Six years ago we purchase a 20 year old stand alone beachfront duplex on the north east coast. Two units each with 4 bedrooms and 2.5 bathrooms. The location rents many more weeks out of the year than non beachfronts in the neighborhood and often the rental of choice for large families vacationing together but looking for their own separate family space. In that time it’s appreciated over 50% and thrown off just over six figures annually. Owning both units and the land under it allow us several options. Sell one of the units should we want the cash, decide to convert it into a single family home for ourselves or as beachfront property values continue to rise redevelop the property ourselves with the latest and greatest in new construction design and really cash out. While the annual return on our all cash purchase isn’t as impressive as other investments at the time or considering the return based on today’s value, in the end considering the appreciation and tax benefits overall I’m happy with our investment.
Esteemed Financial Samurai S-Dawg,
1. Bought the book – Buy This, Not that. Rate it a solid A. It is great because you have more room to explain your subject matter. Angel Investing pitfalls clarified why the little guys/gals have no business in that space. Love the book!
B. We are looking at neither vacation mansion or vacation condo. We are looking at purchasing a mountain cabin on around an acre. We will live there 3-4 months a year and pay cash or 50% down. Family and friends are welcome to use as long as they don’t consume all my bourbon. Total lifestyle thing. No intention of renting.
III. We are also using time share specifically for trips to Kauai. We will probably unload time share in next 2 years but are getting some use out of it. Kauai here we come in MArch and maybe September of 2023.
Keep on truckin S-Dawg!
Appreciate it! Please do me a solid and leave a nice review on Amazon. It’s the best gift this author could receive.
Spending 3 to 4 months in your cabin and the mountain sounds wonderful. And given you plan to pay 50% to 100% cash, you can clearly afford it.
Enjoy it! And don’t look at your vacation property as a financial investment. Look at it as a lifestyle investment!
Maybe it’s me, but I could never understand why someone would want to be bound to a specific vacation property. In travel, there are so many places to go, so many things to see, so many places to stay etc.
By having a specific vacation property to so to periodically, I feel like I’d be missing out.
I don’t look at it that way. I have my ski condo, it’s in the rental pool. I choose when I want to use it and rent it out the rest of the time. This covers my HOA and I make a small profit. I can choose to go there or wherever we choose. When I retire, I will use it for much longer stays.
We inherited a timeshare, which we love. We can go to the original resort or trade it for other locations. We like not having the responsibilities of ownership of a second home. Plus we can go to other locations, we want to travel more as we are at retirement age.
Vacation properties definitely tend to be more enjoyable when you don’t have to pay for it!
We bought the HGV timeshare system on re-sale market (95% off retail) a few years ago after doing a lot of research for the same reason. No work, direct access to ~60 properties and trade into thousands thru RCI for about the cost of $50/night (lg studio) to $150/night (2 bedroom). And Hilton treats resell members 95% as good as retail buyers. Really good deal at some excellent properties with no work involved!
There’s an area in northern Wisconsin that we’ve been vacationing for over 20 years. We have thought about purchasing a cabin there. After running the numbers and based on how often we would stay there, it didn’t mà ke any sense for us to purchase a cabin. We decided the best option was to continue renting, and it would save us tons of money over purchasing a place. Plus, we wouldn’t feel obligated to stay there, since we’ve spent the money on purchasing the cabin. We wouldn’t have to worry about a mortgage, taxes, maintenance costs. We wouldn’t have to worry about cleaning and maintaining it. I would rather just vacation there, then leave and not have to worry about anything else. So, ultimately, renting was the best option, and we couldn’t be happier.
I bought a 650 sft cottage lakefront on a small lake. About a 2 hour drive from our current home. I spent the last year and half since I bought it fixing it up as it needed a new kitchen and septic system. Bought it for around $150 and spent another $60k to upgrade. My wife is a stay at home Mom and if she goes back to work the hope is that she can get a teaching job and not work the summers. We spent the current summer mostly at the lake home. Its a seasonal house so it won’t get used much in the colder months.
With most of the upgrades out of the way and the fairly short drive I think its worth it. something. We also had to buy like 2 of everything so we don’t shuttle stuff back and forth. Its part of a smal HOA community and we know all the full time residents there. If I had to fly somewhere or had a very long road trip to get to it, then I would rather just rent.
Thoughts on fractional ownership properties through companies like Pacaso and Kocomo? Seems like a great way to enjoy a few weeks a year in several awesome properties in prime locations. But my worry is that my family won’t have flexibility to travel to new places when we want, and it’s a big and beautiful world!
I like the business model and usage case of Pacaso. Match your cost with your usage more efficiently. Less downside risk!
I’d rather just rent in different places using Airbnb
Kids sure do speak their truth! What a fun and interesting property / vacation experience comparison. When I vacation I love convenience. I also don’t like crowds but with kids I would favor convenience over fewer people. I have a feeling that may tip the other way once I have an empty next layer in life. Fun post!
I love vacation rentals. Please tell me what you think of our situation.
I own a 6k square foot house in East Hampton i purchased in 2016, right before the election for $2.4M. We added a basement + gym and extended the yard. Zillow says its now worth ~$4.5M. I was only 34 years old at the time and it was the scariest decision of my life.
For the past 6 years my wife and i rent it out every summer (Labor Day – Memorial Day) and we have never had any issues. it more then covers the cost of the house + makes a profit. We then move there for all of September and October… Plus we use it in the winter and all of May.
The way we look at it, we get paid to use the house for 9 months out of the year. Sometimes I do miss not being there in July/August. But for $2k per night, I will gladly sweat it out in the city. We dont have any kids (yet), but my hope is to only rent it out for just August once we start a family. That prime month could actually cover the annual cost of carry.
We also bought a condo in Miami in late 2020, right before things exploded. That property has been a homerun. We spent 5 months there in 2021. The rents have exploded since then. we generally sign leases for 6 months at a time which creates positive cashflow. Despite the price appreciation and strong rental income, there have been more headaches with the Miami property in the last 12 months than there ever has been with the EH one. The tenants in Miami have been less than desirable.
Our thesis is too buy quality homes in top tier locations (tribeca, EH, Miami) that we would love living in PLUS the added benefit of renting them out.
Hopfully in 5-10 years, we wont have to rent them out as aggressively. The goal would be to simply break even and have them appreciate in value + enjoy them.
Any thoughts on this strategy?
Sounds like a good plan to me! Do you own a more expensive or less expensive primary residence?
Hi – not to hijack your thread but I also have a similar method as you. I buy in places that I would want to live in part-time in the future. I purchased a condo in NY earlier this year and I am based in the sf Bay Area. However, I rented it out as a long term rental for now. Your vacation home idea is actually great. Maybe I will try to house hack a vacation home in the future.
I totally agree that instead of buying crappy rental/vacation home, people with financial means should aim for properties that attracts high quality renters and can meet your living standards down the road. That way you gain both ways. Downside is that you need to be already well off from beginning.
We owned both a 4-bed house and a 2-bed condo in the Tamarindo area of Costa Rica. Both were used for vacation rental primarily, though we did visit CR about once a year. We ended up selling the house b/c it was much more upkeep than expected. I agree that for vacation property a condo is much easier to manage. We actually prefer staying in a condo v. house — but if you grew up in NYC like my husband and I did, you’re biased to condo living!
Thanks for sharing. The lack of hands-on maintenance owning a condo gets more and more attractive the older and wealthier we get.
thanks Sma for sharing.How abt having a vacation home and rent to others and property management companies like Vacasa manages it?
That’s what I’ve got for my vacation condo. It works. They do have growing pains with Turnkey acquisition. But not bad. Cheaper commission than going straight with the resort.
Great article Sam. For the past three years, my sister and I have co-owned our late father’s Naples, FL condo (3BR, 3.5BA) in a swanky private golf course gated community. My dad passed in 2019 and had only purchased the newly built condo in 2017. He was in the process of obtaining FL residency but that was never completed (so we were subjected to CT estate tax). He was also slowly downsizing and moving everything he wanted to FL from his home in CT. We decided to sell his CT home (both live in other states) and used the proceeds to pay off the note on the FL condo. However, those gated golf club fees are not cheap so we have to rent it to break even so we could enjoy it with our families at a place he bought anticipating hosting us there. Three years in and we have been breaking even renting it (no more than 3 rentals/year allowed by the community) but your article does highlight some of the pitfalls. The first year or two, the place felt like his and like he was just there. That alone provided massive comfort and sentimental meaning to us. But with each new tenant and the passage of time, it feels a little more lived in and not by us. So far it’s not nearly enough to offload it – thanks to the step-up basis and appreciation, we stand to make a significant profit if/when we do sell. We love being there with our respective families and keep the memory of our father alive by enjoying the place he envisioned us all being together.
We partner with a local realtor who does all the due diligence on prospective tenants and negotiating. We’re blessed that it’s a desirable location and has a steady stream of applications at a high enough price point to discourage unqualified applications. Despite the realtor and management company doing the lion’s share of the work, it does still sometimes require time and energy to manage. Additionally, in order for us to enjoy it during the times available due to us both having school-aged children, we leave rent on the table. We are not looking to maximize the profitability, only to not have to spend any of our own money to keep it. That being said, it’s not always straight forward and easy to make enough to cover costs especially when you want to use it during the desirable seasons.
I’m not sure if you’ve felt this way with your vacation rental, but it does cause a bit of tension with friends and family who try to politely ask about its availability. I know you’ve written about the messy dynamics that can arise with friends and family before, but it is another thing to consider when owning a vacation home. No matter how generous you may feel you are, even those closest to you may feel owed something and that can have unforeseen effects on your relationships. My sister and I so far have resisted opening the unit up beyond ourselves and contracted tenants, simply telling others that we have to treat it as a commercial rental in order to keep it – which is true. Sure we could open it beyond that, and maybe we will selectively, but that can be a slippery slope that can lead to other issues we’re not willing to take on yet.
Thanks for the great content,
Mike
Thanks for sharing Mike. The sentimental value is valuable, and maybe it is best to keep the rental as long as possible to honor your father‘s original desires.
Holding it depends on your usage as you say, but also your existing cash flow and net worth. Does it feel like a burden at all?
Our vacation condo we bought 15 years ago is now worth a small portion of our net worth now. As a result, we don’t see it as a burden at all. In fact, we just paid it off last month, so it’s going to be even less of a burden. I totally forgot that we did pay it off! Hooray!
I think a good goal is to build your net worth large enough so that your vacation property doesn’t feel like a burden. Once it doesn’t feel like a burden, you can let your relatives and friends stay in it without much angst at all. It feels nice at that point, to share the Wealth.
Great article Sam. For the past three years, my sister and I have co-owned our late father’s Naples, FL condo (3BR, 3.5BA) in a swanky private golf course gated community. My dad passed in 2019 and had only purchased the newly built condo in 2017. He was in the process of obtaining FL residency but that was never completed (so we were subjected to CT estate tax). He was also slowly downsizing and moving everything he wanted to FL from his home in CT. We decided to sell his CT home (both live in other states) and used the proceeds to pay off the note on the FL condo. However, those gated golf club fees are not cheap so we have to rent it to break even so we could enjoy it with our families at a place he bought anticipating hosting us there. Three years in and we have been breaking even renting it (no more than 3 rentals/year allowed by the community) but your article does highlight some of the pitfalls. The first year or two, the place felt like his and like he was just there. That alone provided massive comfort and sentimental meaning to us. But with each new tenant and the passage of time, it feels a little more lived in and not by us. So far it’s not nearly enough to offload it – thanks to the step-up basis and appreciation, we stand to make a significant profit if/when we do sell. We love being there with our respective families and keep the memory of our father alive by enjoying the place he envisioned us all being together.
We partner with a local realtor who does all the due diligence on prospective tenants and negotiating. We’re blessed that it’s a desirable location and has a steady stream of applications at a high enough price point to discourage unqualified applications. Despite the realtor and management company doing the lion’s share of the work, it does still sometimes require time and energy to manage. Additionally, in order for us to enjoy it during the times available due to us both having school-aged children, we leave rent on the table. We are not looking to maximize the profitability, only to not have to spend any of our own money to keep it. That being said, it’s not always straight forward and easy to make enough to cover costs especially when you want to use it during the desirable seasons.
I’m not sure if you’ve felt this way with your vacation rental, but it does cause a bit of tension with friends and family who try to politely ask about its availability. I know you’ve written about the messy dynamics that can arise with friends and family before, but it is another thing to consider when owning a vacation home. No matter how generous you may feel you are, even those closest to you may feel owed something and that can have unforeseen effects on your relationships. My sister and I so far have resisted opening the unit up beyond ourselves and contracted tenants, simply telling others that we have to treat it as a commercial rental in order to keep it – which is true. Sure we could open it beyond that, and maybe we will selectively, but that can be a slippery slope that can lead to other issues we’re not willing to take on yet.
Thanks for the great content,
Mike
We have a 1600 sq foot double wide trailer on a chain of 13 lakes with our own dock and about 100 feet to the boat. Useable 5.5 months a year low cost and low upkeep but a great getaway for us. 35 other units but most only used a couple of weeks. Yearly cost less than $5000 a year.
Things are less expensive in northern WI.
Sounds good to me! Your comment reminds me of the lakes of Ozarks and the Netflix show.
I live in a neighborhood, 2500sf with a basement, hot tub and a manageable yard. This is more than enough for my wife and me as a vacation home. Don’t like the idea of a condo as we have a border collie and she needs some space
That’s cool. If we had a dog, it would be allowed at our condo. Our resort allows dogs for owners.
Sam, great article! On a similar topic, what’s your thought on vacation home ownership/vrbo? We just sold one after owning for a year, couldn’t pass up a nice profit based on our acquisition cost, but looking to get back into the market with something nicer. Keep up the good work!
Regards,
Bob from Wi!
Can you explain vacation home ownership?
If you have the time, go for it. I just don’t want to do VRBO and spend any time screening tenants and finding tenants. I have enough of that with my long-term rentals here in San Francisco.
Excellent article, I knew there was a reason why I read and enjoy your work, thanks