8 things to keep in mind when buying a vacation home

Published Date: March 12, 2024

A luxury vacation home with a patio and pool.
While strolling white sandy beaches or skiing alpine slopes may not be possible at your primary residence, buying a vacation home can be the precursor to the adventures you’ve been dreaming of.Whether it’s a financial goal or a means to spend more time with your family (or both), owning a vacation property can transform how you holiday at your favorite vacation destination.When you buy a vacation home, you can say goodbye to short-term rentals and say hello to regular visits to a home away from home — complete with the cozy touches that enable you to relax in a familiar and luxurious environment.From financing a vacation home to knowing which vacation home mistakes to avoid, our guide walks you through the eight steps of how to buy a vacation home in 2024.

1. Evaluate the pros and cons of purchasing a vacation home

Putting your money into another property is a big commitment. It’s important to fully understand everything you stand to gain and lose when considering buying a vacation home.
A graphic compares the pros and cons of buying a vacation home.
Home ownership is a large responsibility in itself, and adding a vacation property can greatly increase that financial pressure. However, buying a vacation home also has the potential to increase your quality of life.

Pros of buying a vacation home

Some of the major benefits of buying a vacation property include:
  • Saving money on vacations since you won’t need an Airbnb or hotel
  • Affordable vacations leading to more frequent or longer trips
  • Investing in real estate, an asset that potentially appreciates
  • Offsetting some of the costs of ownership via tax deductions
  • Buying a vacation rental property for passive income
  • Retiring at your secondary residence after selling your primary home
But all of these benefits can come with some drawbacks. 

Cons of buying a vacation home

Make sure you consider some of the downsides that follow vacation home purchases, like:
  • Budgeting for expenses like utilities, taxes and insurance 
  • Paying for maintenance costs even though the home may be vacant
  • Hiring a property manager to handle the maintenance and manage renters
  • Growing tired of visiting the same vacation destination
  • Losing liquid cash due to the large second home purchase
If you feel prepared for all of these pros and cons, then it’s time to find the vacation home that’s right for you. 

2. Prepare your potential household for new vacation property responsibilities

Although buying a vacation property can result in a lot of fun, it’s also important to have a firm grasp on the responsibilities of vacation home ownership. Here are a few to consider:
  • Furnishing the vacation home
  • Yearly time commitments
  • Property management
  • Property maintenance
Consider delegating tasks to yourself, your partner or other family members. Decide who will prioritize maintaining the property, who will manage potential tenants and how you will outsource any necessary tasks while you’re away. Now that everyone is on the same page, it’s time to pinpoint why you want to buy a vacation home.

3. Know what’s motivating the vacation home purchase

“Perfect” is a subjective term when it comes to property ownership. What is right for you and your family will largely depend on the purpose behind buying a vacation home. 
A graphic shares what to look for when buying a vacation home.
There are three core factors to remember here: intended use, activities and style.

Intended use

Your main motivation for buying a vacation home may be simply relaxing or having a space to escape from the hustle and bustle of everyday life. On the other hand, many people want to turn their second home into a money-maker, and the success of services like Airbnb and Vrbo makes it easier. Using your second home as a rental property will affect both your second home mortgage application and tax benefitsA rental property is seen as a business and qualifies for interest rates and taxes that are different from vacation home financing. Ensure you understand the full implications and discuss it with your lender and financial advisor. 

Activities

Do you have specific ideas for what you want to do at your vacation property? Are you longing to be steps from the slopes, with a roaring fire after a day of skiing? Maybe you want to spend time lounging by the pool or biking to wineries on backcountry roads. Consider how a vacation home destination aligns with your lifestyle, and which amenities you want to comfortably create a home away from home.

Style

The style of a house can often take a back seat to the more important factors on this list, but it still matters. When it comes to architecture and interior design, are you drawn to contemporary or rustic chic? Mid-Century Modern or mountain chalet? Open concept plan with a great room or more traditional defined rooms?Whatever interior design you choose, make sure you have enough bedrooms and bathrooms to accommodate your guests in style and comfort. And look for a home with spaces for spending quality time together. Having a home you’re in love can keep you happy with the purchase for years to come.

4. Choose a vacation home destination

With dozens of potential vacation home destinations, it’s essential that you are crazy about the location of your second home. You’ll frequent the same place, so make sure it’s the right fit for your family.Since real estate is a long-term investment, you’ll want your new home to have long-term appeal. Ask yourself the following questions:
  • Do I want it to be within driving distance so I can visit regularly?
  • Is the destination family-friendly, or does it center around nightlife? 
  • Will visiting it require long-distance plane travel? 
  • Will my vacation home be in a different climate?
You should be well acquainted with the location before you buy a vacation home. Plan a visit or two to your prospective destination before making a purchase decision. 

5. Determine your financial goals

A graphic shares the three steps to becoming vacation home ready.
Now that your dream destination and lifestyle factors align, it’s time to determine your overall financial goals. Before you can move through the rest of the second home buying process, complete the following:
  1. Assess your financial health: Review your credit score, debt-to-income ratio and current expenses to assess if your finances are ready for a second home.
  2. Create a vacation home budget: Create a budget for a second home mortgage, utilities and maintenance of your vacation home.
  3. Plan for emergency expenses: Add padding to your budget by planning for emergency expenses like roof repairs or clean-up after a natural disaster.
It’s important to note that owning a second home means having certain tax obligations. 

Understand vacation home tax obligations

Your vacation home may qualify for several unique second home tax deductions. Qualifying for these tax breaks can help you lower your overall vacation home expenses. Potential tax benefits include:
  • Mortgage interest reduction
  • Property tax deduction
  • Home equity loan deduction
  • Energy efficiency deduction
  • Rental expense deduction
  • Rental depreciation deduction
Taxes aren’t the only financial factor that can help lower the cost of second home ownership. The type of ownership structure you choose can also be a determining factor.

6. Consider vacation home ownership structures

Being the sole owner of your vacation property isn’t the only option. In fact, there are several types of ownership to choose from.Co-owning a property within a limited liability corporation (LLC), for example, allows multiple people to own a single property. You will make decisions together, and expenses get split accordingly.   While being a sole owner of a second home allows you to make all the decisions, you’re also responsible for all the expenses. Co-ownership can potentially reduce the stress of owning multiple homes.

7. Avoid common vacation home mistakes

There are some established and reliable rules for buying a vacation home. 
A graphic lists the four most common second home buying mistakes.
Here’s how to avoid vacation home mistakes when buying your second home.

Don’t make emotional decisions

Having a vacation house you love in a destination you love is a great goal, but letting that passion cloud your judgment can lead to long-term problems. Deciding to buy a second home while your emotions are high after a recent visit may feel like the right move, but you might develop buyer’s remorse when those feelings fade. Instead, approach buying a vacation home from a calm, rational perspective to successfully manage expectations.

Watch your budget

Once you’re attached to purchasing a vacation home, increasing spending to reach your goal can be easy. Remember that your budget is there to help guide your decisions and keep you out of financial trouble. Exceeding your budget will only increase your chances of biting off more than you can chew.  Aside from high-level expenses like your mortgage, factor costs like lawn care and cleaning services into your budget.

Don’t miscalculate your expenses

Many additional costs are associated with vacation home purchases aside from the sticker price. Understanding that you’ll be paying throughout the year for your vacation property — not just when you use it — is important to remember. Remember that you’ll need to furnish the house, pay for lawn care when you’re away and make repairs as needed. That’s all on top of property taxes, insurance and HOA fees.
Expert tip: Using a vacation home maintenance checklist while calculating your budget can help you best estimate your potential second home expenses.

Underestimating property management

If you live far away from your vacation home, you’ll need help keeping the place livable throughout the year. For that, you’ll likely need to pay a property manager. This is especially necessary if you plan to rent it out. While the service is well worth the expense, it will affect your projected revenue. Remember that the type of house you own and the location of your home may also increase property maintenance costs. For example, a beach home may suffer from salt damage.

8. Begin the home buying process

If your mind’s made up and it’s time to own another property, the next step is learning how to buy a vacation home. It should feel familiar if you own your primary home.
  • Determine if you can afford the vacation home. Track your monthly income and deduct your regular expenses. Do you have enough left over each month to cover another mortgage payment, utilities and maintenance?
  • Get pre-approved for a second home mortgage. Talk to lenders to see if you qualify for a loan and how much that might be. They’ll look at your credit score, debt-to-income ratio and how much you’ll need for a down payment. 
  • Find your new vacation home. Apply the advice in step two to ensure you’re putting your money where it will have the best return on investment and add value to your vacation goals.
A graphic shares the eight considerations of buying a vacation home.
Buying a vacation home can be a fulfilling experience and financially rewarding. Following the advice in this guide can help make that happen. If being the sole owner of a second home feels out of reach, look into options for co-ownership. Pacaso offers fully managed ownership of a luxurious turnkey second home in epic destinations.

Buying a vacation home FAQ

Is it a good idea to invest in a vacation home?

Your readiness to invest in a vacation home depends on your financial health, lifestyle goals and ability to maintain the home throughout the year.

Is it hard to finance a vacation home?

There are many ways to finance a vacation. You can apply for a traditional mortgage or finance via fractional ownership, ultimately lowering your share of the financial burden.

What are the hidden costs of affordable vacation homes?

Some hidden (or sometimes forgotten) costs of any vacation home can include property maintenance, HOA fees and applicable insurance for your area.


headshot of writer Tony Huynh

Tony Huynh


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