Every summer my husband Thom and I rent a home in the mountains for a month. Then for a change of pace, we rent a cottage at the beach after that. Neither are fancy, but they are fun and comfortable. While I love my home in the desert southwest, it can be brutally hot during the summer, so escaping to somewhere cool when it’s scorching outside is a dream come true for me. And because we’ve “rightsized,” the cost fits easily into our budget.
But a question we always get is, “Oh, are you staying at your second home?” We happily answer “No!” That’s because when we visit these locations, we like to have the option of changing destinations and properties. Best of all, we like the freedom of not having to spend the time and money managing the property for the remainder of the year. These reasons and more prompted me to consider: is buying a second home, an RV or a boat SMART? Here’s my answer.
Why A Second Home Is Usually Not A Good Investment
The real estate question is a no brainer. Thom and I both have been real estate brokers for over 30 years, so we have experience in this area. Although I mainly write about related issues, Thom’s focus centers on commercial and investments. And although some people would like you to believe differently, a second home, an RV, or a boat are seldom good investments.
As I’ve written about before, anything that costs you money on a regular basis without a reasonable return is not a sound investment. Even if rented out part time, second homes seldom generate the cost of ownership, let alone a profit. And although some have the potential to increase in price over the years, there are no guarantees, and more times than not the overall cost to carry them through the years is a big negative.
But what about the enjoyment? It’s true that having your own place can be rewarding. Certainly, in our culture, we like to “own” things and often get pleasure by just telling others that we do. But while all that sounds fantastic, the reality of the time and money needed to maintain the property often doesn’t live up to the hype.
For example, the beach house we are renting for a month just had the stove replaced, the bathroom redone and requires constant repairs to keep it in usable shape. The owners have owned it since 1984 and while they could surely sell it for more than they paid, if they added up every single expense they have had since they bought it, they’d be lucky if they could just about break even.
On the other hand, Thom and I showed up at the first of the month and everything here was clean and in working order. Once our rental fee is paid, if something breaks or needs attention, we call the landlord. Instead of looking at all the things in a home that need work or attention, we can focus entirely on living out the month at the beach and enjoying a new location. When we leave, we drop off the key, and the only thing we take with us are positive memories of a great month.
Through the years, we’ve known scores of people who bought a second home. Even with the best intentions, much of the time they sit empty. As we walk around our beach neighborhood, nearly half sit shuttered and vacant. Unfortunately, when the owners do get to visit them, they spend much of their time fixing or maintaining things. Even those who buy hoping to rent out their beach home as much as possible, realize that it takes more time and effort than they previously imagined—and doesn’t always bring in much money. A better alternative is to consider buying an investment with a good rate of return. By using the positive cash flow from your investments to travel when, where and how you like, you can have a lot more fun and with less work. And isn’t that what vacations are supposed to be?
Is An RV The Way To Go?
How about an RV? As I mentioned a few posts ago, my parents loved their motorhome and once they retired they used it frequently. Unfortunately, I also have a sister who bought a motorhome to travel in while her kids were small. After purchasing a 32’ motorhome that could sleep all the kids, and paying over $40,000 through a loan, they took the motorhome for a two week trip across the country to visit relatives in Michigan. Once home, they parked it in storage and over the course of the following 20 years (in which they were making payments!) they probably used it less than ten more times. As time went by, when they did use it, it had to be repaired and rehabilitated so that they could travel safely. Needless to say that motorhome cost them at least double the $40,000 they paid.
I don’t think my sister and family are alone. Drive by any storage facility and you’ll see hundreds of motorhomes parked and slowly deteriorating. Chances are good, like with my sister, someone is still making payments on the “dream” motorhome or RV they always wanted to own. Meanwhile, they are working hard at a job just to make the payments without having the time to enjoy the purchase.
What About A Boat?
Boats are no different. Last week Thom and I biked along the marina where we saw over a hundred boats sitting in a storage lot, dried out and slowly falling to pieces. The marinas are also crammed with thousands of boats, waiting for someone to come and enjoy them. It’s likely that every person who owns those boats once had a dream of buying it and taking it out for a cruise every weekend. It sounds fun. It sounds romantic. The sad reality is that person is probably busy working to pay for the boat, the storage, and the ongoing maintenance, and has other things soaking up his time. Our friend John B told us the two best days he had owning a boat was, “The day I bought it, and the day I finally got it sold. “
The SMART Alternative—RENT!
As a person who loves to travel and stay in homes and vacation rentals, I can attest to the fact that renting can be far more rewarding than buying. Renting gives me the freedom and flexibility to go to visit all sorts of locations and properties. And I’m not just talking about second homes. Renting an RV and/or a boat can be an excellent way to experience the enjoyment that we dream of, without a commitment to the long-term costs. They are also a good option for a person to discover if that kind of lifestyle or a particular location is something they want to spend money on in the future. Wouldn’t you like to find out if you even like camping before investing heavily in an expensive trailer or motor home?
Would I ever recommend buying instead of renting? Perhaps. If you plan to spend at least 50% of your time in another location and know without a doubt that you want to live in that location for the next ten years, then it might make financial sense to buy a second home. But then only if you can easily afford it and it does not draw funds away from your retirement savings and/or requires you to work at a job where you are unhappy the rest of the time.
What about a boat or RV? I know some people who are happily living in their RV and traveling around the country on a regular basis. I know others who do use their boat regularly—not many, but a few. If either purchase fits comfortably into your lifestyle without added expense, then yes. But just like with owning a 2nd home, a realistic assessment of costs and potential usage is necessary before the purchase.
The biggest problem we see repeatedly is that people overlook or ignore the actual costs of buying their “dream property.” It is far too easy for a salesperson to talk them into a purchase by saying things like, “Just think of how much money you can make renting it out.” Or, “This property is sure to go up in price, and you’ll make a bundle.” Real estate prices do not always go up and renting a property takes more work than most realize. Calculating actual costs is a critical step—and don’t take the salesperson’s word for it. Figure it out yourself.
Will Thom and I return to the same rentals we’ve enjoyed this summer when next summer rolls around? Maybe. We’ve enjoyed ourselves immensely. But if not, there are always other mountains, other beaches to explore, and lots of vacant 2nd homes available to rent. With renting, you have true flexibility. And sometimes the best adventures happen when plans change.
As our month at the beach winds down, I can honestly say that we’ve enjoyed our experience here far more by renting, than with the responsibility of owning. For some, it might work out well to buy a second home, an RV, or a boat. But like with so many things in life, careful consideration and self-awareness are essential. Plus, it’s always SMART to remember that what we are really seeking to find when we do anything, including buying something like a second home or a boat, is the feelings we expect to get from the experience. Often, just “renting” can satisfy us far more than we imagine.