Next Generation of Baltimore

Vacation homes are a big waste of money?

Author: Nicole

The rent is a waste of money, or not? This is what we have been conditioned to believe for generations. Even when the housing market is more stable and prices are steadily rising, buying a vacation home can not be the best decision for your wallet.

If you buy a holiday home that you need a couple of months a year? Take a look at a simplified example to highlight what it costs to own a vacation home. You buy a home for the holidays, and monthly costs including mortgage payments, property taxes, insurance, HOA, or other maintenance and utilities is $ 3,000 a month. You can use the house for three months a year, even if you pay 12. So you pay $ 3,000 a month for 12 months or $ 36,000 per year and using the house for three months at a cash cost of $ 12,000 per month ($ 36,000 / 3). You can rent a vacation like this in the same area of ??$ 4,000 per month or $ 12,000 for the season. ’24 Thousand dollars you’d pay more for homeowners for years by renting it ($ 36,000 – $ 12,000). Over five years you would have spent $ 120,000 more for their homes ($ 24,000 x 5 years). Yes, the house you can enjoy, but you must subtract the purchase and closing costs and the potential sale of a real estate commission of any assessment.

Let’s say you bought a house for $ 400,000, plus $ 8,000 in closing costs for a total initial investment of $ 408,000. Suppose that it has increased in value by 5% annually (higher than normal market conditions). It would be worth about $ 510,500 at the end of the fifth year. If you sold the house and removed a 6% commission and $ 8,000 in closing costs to sell net of about $ 471.900. Your profit would be about $ 63,900, but remember that you would have spent an additional $ 120,000 to own rather than rent the house for five years would actually mean that you have spent $ 56,100 on everything (- $ 120,000 + $ 63.900).

Keep in mind that the house would need repairs and renovations, which would have added cost as an owner of vacation. But you pays your mortgage balance would be an advantage to own than rent. But be aware that during the first years of a mortgage of 30 years, usually 75% – 80% of each mortgage payment is not of interest, principal repayments. You may even be able to deduct mortgage interest on that second home, but the key is for this holiday, the financial cost would outweigh the benefits.

Every situation is different, but we now have the tools to conduct your financial analysis. Sometimes it makes sense for you to buy from financial lease of a house, and sometimes there are non-financial reasons to influence your decision. E ‘, however, it is better to take a major financial decision with your “eyes open”, rather than with the blinders. You can avoid disappointment or financial problems later.

Please note that all information contained in this article is educational and should not be construed as financial advice. For specific advice for your needs and conditions, you should consult a financial adviser or tax.

Tags: monthly costs, steadily rising

This entry was posted on Wednesday, June 1st, 2011 at 12:58 am and is filed under Vacation Homes. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.