Is a vacation home a good investment? Sep 20th

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Is a vacation home a good investment?

– moneysense.ca

The benefits of owning a vacation property are obvious. A cottage, cabin, condo or trailer a short drive from your home can provide a quick weekend recharge. A property down south can serve as a regular vacation destination or a winter home for a snowbird.

Sometimes, emotions are the motivation for buying a vacation property. I like to evaluate a property purchase from a financial point of view—and here is how.

The costs of buying a vacation property

Say a property’s purchase price is $500,000. Whether you use cash, a mortgage/home equity line of credit, or a combination of the two, there are other costs to consider.

If you purchase with cash that you could otherwise invest for a 4.5% return (to use a conservative assumption), there is an opportunity cost of not investing that money or leaving it invested. If you borrow money, there may be an interest cost of 4.5%. So, to keep it simple, we will assume an opportunity or financing cost of 4.5%.

Property taxes, utilities, insurance, condo fees, and maintenance could easily add another 2% to 4% per year in costs…

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