Is it Smart to Buy a Vacation Rental?

Every time I go on vacation I think about buying a vacation rental, but in the end, I decide it is not a good decision. I think buying vacation rentals can work out well, but many people do not do as well as they think they will. The numbers tend to look great on the surface, but when you dive deeper it does not seem to be as good of an investment.

Is buying a timeshare a good idea?

First, I want to briefly talk about timeshares. I have been on more than a few vacations that included a presentation on buying timeshares. I have to admit, the presentation makes it seem like a good idea. However, you only need to look at one thing to see how valuable a timeshare really is. What is it worth after you buy it?

Most people cannot sell their timeshare for a fraction of what they bought it for if anything. What are the problems with a timeshare?

-The presentation mixes up the math. When I have gone to the presentations they try to compare buying a timeshare with how much money you normally spend on a vacation. But, they almost always use fuzzy math. They will compare three weeks of your own personal vacations to one week of a timeshare vacation. They often include flights in your personal vacations, but not in the timeshare numbers.
-They use tactics to make you more apt to buy. They take forever on the presentation, do not feed you much, make the rooms cold. All these psychological tricks make you uncomfortable and more likely to buy so you can leave!
-There are many restrictions on most timeshares for when you can travel, and where you can travel.
-There are cleaning fees and other fees that are not always disclosed.

Timeshares suck, but if you really want to buy one, get one on the secondary market for a fraction of what you will pay from the resort directly.

Are vacation homes a good investment?

Back to my point on vacation homes. I am talking about buying a condo or house outright, not a fractional or timeshare. Buying a vacation home seems like a good investment because:

-You save money when you go on vacation because you don't have to pay for a room
-You are investing in something by buying a place, instead of always renting
-You can offer a place to stay for friends and family
-You may be able to make money renting the property out

What are some of the problems with buying a vacation house?

When I looked into buying a vacation house, it looked like a great idea until I dug deeper. I could buy a condo on the beach in Turks and Caicos for under $500,000. It could rent for a few thousand dollars a month and make a ton of money! However, things did not look as great after digging a little:

-The HOA fees are often thousands of dollars a month for the resort
-Use must use the complexes managers to rent out the place which costs even more
-You may not be able to rent the unit in the off-season
-There can be restrictions for how long someone can rent the unit, which makes it harder to rent
-Insurance is very expensive

Besides the economics of buying a place, there are other things to consider:
-You will feel obligated to go to the same pace for vacations
-While you stay there, you are not renting it out, which can cost you money
-If you choose to manage on your own, it can be very time-consuming.

I am not saying you cannot make a good investment with a vacation rental. Some areas are better than others for the returns versus the costs. However, I would not invest in one because you save money on vacations. I would make decisions based on making money after all the expenses are accounted for. Most people do not look at all the numbers or try to get a great deal on a vacation rental.

https://investfourmore.com/2015/03/23/can-you-make-money-with-vacation-rentals/