Does summer travel have you thinking about buying a vacation property for your family to enjoy year after year? Do you find yourself scrolling though real estate listings while you’re away, picturing a place to call your own? Well, it may be time to take the leap and invest in a vacation home.
While owning a second home may feel like a dream come true, it’s important to be sure it makes financial sense. With thoughtful planning, a vacation home can serve as both a long-term investment with the potential to appreciate and a meaningful legacy for the next generation.
Before you start scheduling property tours, here are some important factors to consider.
Does ownership suit your lifestyle?
If your family values tradition, shared experiences, and putting down roots, a vacation home may be a great fit. This type of investment works best when the property is easily accessible through a reasonable drive, a short flight, or a ferry ride. And if it aligns with your interests, such as boating, skiing, cycling, and hiking, that’s the icing on the cake.
However, if you tend to prefer variety in your travel plans, returning to the same place may start to feel limiting. You might feel obligated to use it instead of exploring new destinations. In addition, ownership will add to your responsibilities. Even if you hire a property manager, you may grow to resent paying for the obligations that owning another home undoubtedly creates.
Does the purchase make financial sense?
Real estate is an illiquid investment, so it’s important to be sure that purchasing a property won’t disrupt your broader financial plan. In addition to the purchase price, you will need to factor in the carrying costs, including home maintenance, utilities, HOA fees, and insurance. If you are considering renting the property, research the local laws and community rules to confirm it’s allowed. And remember that rental income is not guaranteed, and comes with its own set of risks, including potential renter property damage and wear and tear.
What are the tax implications?
How you use your vacation home will impact your potential tax benefits. Subject to specific qualifications around personal use and rental days, mortgage interest may be deductible within the same limits that apply to your primary residence. You may also be able to deduct expenses like property taxes, insurance premiums, and property management fees, depending on how the home is used. Your Crestwood team can help you determine the tax implications for your specific situation.
Plan Ahead for Ownership and Inheritance
How the property is titled—whether individually, jointly, through a trust, or within an LLC—can have long-term implications for liability, taxes, and estate planning. If your goal is to pass the home down to family, it’s worth considering how that transfer will occur and whether your loved ones are interested in keeping the property. Proactive planning can help reduce the potential for future conflict and ensure that your intentions are clearly documented and followed.
If you are thinking about a vacation home, reach out to Crestwood!
At Crestwood, we take a holistic, forward-looking approach to wealth that simplifies the complexities of financial decision-making. Before purchasing a vacation home, it’s important to understand how it fits into your overall financial picture. If you’d like to explore your possibilities, reach out to your Crestwood team. If you are not yet working with Crestwood, please contact us to start a conversation.
This document is provided for general informational purposes only by Crestwood Advisors, an investment adviser. Crestwood Advisors does not provide legal advice, and this document should not be construed as containing legal advice. For legal advice, consult with a licensed attorney. This document should not be construed as containing tax advice. For tax advice, consult with your tax adviser.
