Thinking of Buying a Vacation Home? Here Are Some Things to Consider With Your Financial Advisor

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These days, some may no longer feel like they’re tied to one location. As a result, some are fleeing big cities to spend more time at their favorite vacation spots. Having more flexibility to choose where we work has probably spurred some of us to even think about making that move more permanent and buying the vacation home we’ve dreamed of.

But you have to be careful and take the time to understand what you’re getting yourself into. Buying a second home is a long-term commitment. You have to weigh the long-term implications against short-term convenience.

Now, this isn’t to discourage you by any means. It’s a big decision, and you have to make sure you’re doing it for the right reasons. Let’s take a look at three questions that could help you decide whether buying a vacation home makes sense for you.

What’s your goal?

When you’re facing a big financial decision, like buying a vacation home, it’s a good idea to take a moment and think about what you’re trying to accomplish. Ask yourself: Why am I doing this? What am I trying to get out of it?

You need to decide a couple of things. Does the purchase make sense for you? Does it fit into your current financial situation as well as your future plans?

This is exactly the kind of discussion you should have with your financial advisor. Because, depending on your goal, your financial considerations might vary. For instance, are you looking to purchase the vacation home as an investment? Or are you buying because you want to spend more time there? The calculations for both goals are different.

Either way, your financial advisor can go over your financial picture and the math to help quantify your dream. That is, they can help you understand what it would take to make owning your dream vacation home a reality.

Your financial advisor can also help you think through whether there are other ways to reach your goal. If you’re looking to buy as an investment, for instance, are there other less costly investments you haven’t considered? If you’re looking to spend more time away from home, is there another way to accomplish this without picking up another mortgage? In other words, your advisor can help you explore other options you may not have considered and weigh the pros and cons of each.

Does buying a vacation home make financial sense in the long run?

Owning a vacation home may seem practical if you’re able to choose where you work. But even then you have to ask yourself whether the work-from-home scenario will hold true over the next five or 10 years.

Right now, it might be easy to believe you’ll use the place as often as possible to make it worth the commitment and costs. But will you still be able (or want) to put time and money into maintaining the property if you don’t end up using it as often as you thought?

Another consideration is whether you’ll be okay vacationing at the same destination year after year. Situations change all the time. Life is rarely linear. We often have to make adjustments as things change. That’s why we believe big financial decisions, such as buying a second home, should be made based on long-term considerations rather than short-term convenience.

Is this purchase feasible?

Ultimately, you need to determine if buying a vacation home fits with your financial goals and long-term plans. Ask yourself whether you’re prepared to make this commitment given your financial situation or if you’re at risk of overextending yourself.

Again, this is where your financial advisor can help. He or she can assess your financial plan and tell you whether you can comfortably make the purchase given your cash flow, emergency fund, retirement savings, kids’ college funds and other considerations. If the numbers aren’t where they need to be, you might not be in a financial position to take on a second mortgage.

If your situation is complex, your financial advisor can run through different scenarios with you. You could then see how the purchase could potentially affect your overall financial plan. For instance, would buying a vacation home require you to delay your retirement or redirect funds from elsewhere? What other possible trade-offs would you have to make?

Your financial advisor can also point out other potential expenses related to the purchase. These might include HOA fees, property taxes, insurance, utilities, and travel costs. This number-crunching offers a reality check, allowing you to see what it’s really going to take.

The bottom line

It’s quite nice imagining ourselves working from the beach for a good part of the year. With the option of remote work a reality for many Americans, it might seem like the perfect time to buy a vacation home. And you may feel pressured to do so because of what other people are doing.

However, it’s essential to tune out the noise and think about whether that second home is right for YOU and in line with YOUR plans. Ask yourself: What am I trying to get out of this purchase? Does it make sense in the long run? Is it financially feasible? You don’t have to figure all this out on your own. These are exactly the kinds of questions that we at United Capital Financial Advisors can help you navigate. With our expertise and personalized approach, we can work through these questions together, helping to bring clarity, confidence, and control to your financial decisions.

This commentary contained herein is intended for informational purposes only and should not be construed as tax, legal or investment advice. Past performance is not indicative of future results. Clients should obtain their own tax, legal or investment advice based on their circumstances. The material is based on sources deemed reliable but is not guaranteed.

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