I was a lucky kid. For part of my childhood I grew up living year-round in Barnegat Light, New Jersey. It was idyllic, quite honestly, but it all came to an end when my dad sold the house because he was tired of the weekend commute. Dad lived in an apartment during the week over top his business, so it was a sacrifice. I understand the desire to own a piece of a perfect place. As a financial planner I have to use my numbers brain sometimes to override my emotional self. Recently, I've had a couple of clients thinking about buying second homes. It's a complicated financial planning question.
For many families, the idea of owning a vacation home is enticing. A second home can provide comfort, tradition, and a sense of belonging to a favorite place. But before taking the plunge, it’s important to step back and consider both the financial and lifestyle tradeoffs.
The True Cost of a $500,000 Vacation Home
Assuming a 20% down payment and a 30-year mortgage at 6.5%, the annual cost of ownership looks like this:
- Mortgage (principal & interest): $30,339
- Property taxes (1.25%): $6,250
- Insurance (0.5%): $2,500
- Maintenance (1%): $5,000
- Utilities (0.5%): $2,500
Total annual cost: about $46,600
That’s before travel costs, HOA dues, or unexpected repairs.
The B&B Comparison
The same $46,600 would pay for:
- ~155 nights per year at $300/night
- ~116 nights per year at $400/night
In other words, you could spend 3–5 months in beautiful inns, resorts, or vacation rentals each year — with no maintenance responsibilities.
The Investment Tradeoff
The opportunity cost is equally important. Instead of buying the home:
- A $100,000 down payment invested in a 60/40 portfolio at 6% could grow to $574,000 in 30 years.
- Annual carrying costs (~$16,250/year) invested could grow to $1.28 million.
- Combined potential portfolio value: ~$1.86 million.
Lifestyle vs. Investment
Of course, not every decision is purely financial. The key question is whether a vacation home is an investment or a lifestyle choice.
Vacation-area homes may appreciate strongly (as seen in Sag Harbor, Long Beach Island, or Ft. Lauderdale) — but they can also be prone to bubbles and downturns. If you buy, it should be because you value the memories, traditions, and enjoyment as much as any potential return.
Key Questions to Ask Yourself
- Do you prefer returning to the same place each year, or do you value flexibility?
- How often would you realistically use the home?
- Could you rent it out to offset costs — and are you comfortable with the responsibilities that entails?
- If the property’s value doesn’t rise as expected, would you still feel good about the purchase?
- How does this choice align with your long-term financial plan and legacy goals?
Bottom line: A vacation home can be a wonderful investment in family memories, but it comes at a significant financial cost. By comparing the numbers — and clarifying your motivations — you can make a decision that fits both your wallet and your lifestyle.
Contact me for a discussion. I have worksheets and financial planning tools to help create a decision making framework.
The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product [and/or service].