As summer approaches, many people dream of relaxing getaways—whether that’s a beach retreat, a mountain escape, or a golf-and-pickleball-filled stay. One question we hear often from clients is:
“Should I buy a vacation home, or just rent when I want to get away?”
As financial professionals, our answer is: it depends. Each option comes with its own advantages, drawbacks, and long-term implications. Below, we’ve outlined some key factors to help you evaluate what’s right for you.
Buying a Vacation Home
Buying a second home can be rewarding, but it also comes with significant responsibilities. Before taking the leap, ask yourself:
How much time will you actually spend there?
If you’re only planning to visit for a few weeks each year, the cost and upkeep might not justify ownership. For those who envision spending several months annually, ownership can help you build deeper ties to a community and make the home feel like a true retreat.
Does it align with your travel habits?
Owning a vacation home often means vacationing in the same place. If you enjoy exploring different destinations each year, renting may offer more flexibility.
Will it add stress to your life?
Like your primary home, a vacation property needs maintenance, repairs, and management. Consider whether the tradeoff is worth it for the enjoyment it provides.
Will it enhance your relationships and lifestyle?
Many people find joy in having a central gathering place for friends and family. If your second home becomes the backdrop for creating lasting memories, it can be a deeply fulfilling investment.
Potential Benefits of Buying
Appreciation Potential: Real estate may increase in value over time.
Savings on Lodging: You won’t have to pay for accommodations each vacation.
Rental Income Opportunity: In high-demand areas, short-term rentals can offset costs.
Convenience: Your own furnishings, favorite restaurants nearby, and no need to book months in advance.
Retirement Planning: Some clients plan to use their vacation homes as future retirement residences.
Potential Drawbacks of Buying
Financial Commitment: Down payments, maintenance, taxes, and repairs add up quickly.
Financing Hurdles: Loans for second homes often require higher credit scores and larger down payments.
Property Management: If renting it out, you may need to hire a manager, cutting into your profits.
Rental Uncertainty: Income can fluctuate based on seasons or demand.
Limited Disaster Aid: FEMA typically only covers primary residences.
The Luxury Second Home Market
Despite rising interest rates and tight inventory, luxury second homes remain in demand. In the first half of 2024, million-dollar home sales increased by over 5%, and many buyers paid in cash. Top destinations include Cape May, NJ; Gulf County, FL; and more budget-friendly markets like Washington County, UT and Cumberland County, ME.
Insurance Considerations
Second homes carry unique risks—vacancy, location hazards, and potential renters. As a result, second home insurance can cost two to three times more than primary home coverage. Be sure to assess coverage options carefully, especially if you're financing the purchase.
Estate Planning Implications
If you plan to keep the home in the family, establish a clear plan for ownership and upkeep. Options include gifting the property, placing it in a trust, or forming an LLC to manage use and expenses. Work with your financial and estate planning professionals to determine the best fit for your goals and family dynamics.
Tax Considerations
While we’re not tax advisors, here are a few things to keep in mind:
Mortgage interest may be deductible (limits apply).
You can deduct property taxes—up to $10,000 combined for all properties.
If you rent the property for 14 days or fewer per year, rental income may not need to be reported.
If you rent for more than 14 days, it’s considered an investment property, with different tax rules.
When selling a second home, you may not qualify for the same capital gains exclusion as your primary residence.
Renting a Vacation Home
If you prefer flexibility and lower upfront costs, renting may be the better option.
Benefits of Renting:
Less Responsibility: No maintenance, insurance, or long-term commitment.
Travel Variety: Explore different destinations and property types.
Potentially Lower Cost: No mortgage, taxes, or upkeep expenses.
Downsides of Renting:
Costly During Peak Times: In 2024, the average daily rate for vacation rentals is over $325—and rising.
Not Your Space: You’re living in someone else’s home, which can be less comfortable.
Limited Availability: Desirable properties book quickly during peak seasons.
Booking Hassles: Coordinating rentals, deposits, and damages can be inconvenient.
Final Thoughts: Take Your Time
Falling in love with a vacation destination is easy—but buying a home there is a major decision. Consider test-driving the experience by renting in your desired area for a month or two. This gives you a more realistic sense of what owning might be like.
Whether you’re leaning toward buying or renting, the most important thing is making an informed decision that aligns with your financial goals, lifestyle, and long-term plans. If you’d like to talk through your options, we’re here to help.