Buying a Vacation Home

A simple log cabin in the Ozark mountains. A weathered cottage on Cape Cod. A ski condo in Aspen. A secluded home tucked into a cove on the Caribbean island of St. Lucia. A resort time-share in Pennsylvania's Pocono Mountains. The words vacation property may be used by the owners of each, although the financial, legal and tax consequences of ownership can be as different as the environments.

There are many reasons to buy a second home— some personal, some financial. You could enjoy a vacation spot so much you believe you'll want to keep returning over and over. Rather than renting a different house or hotel room each time, you want to feel at home and be recognized as part of a community—and that means having your own place where you can put down roots, entertain friends and family, and stash vacation gear.

If your goal is merely to lock in predictable vacation costs where you like to go each year, a fractional interest or timeshare might make sense. Some kinds of timeshares are not real estate per se but are in effect a prepaid right to use a given unit for a certain length of time each year. If so, keep expectations for financial gain low or nonexistent; it's usually difficult to sell a timeshare for what you paid for it.

You may dream of buying a vacation home where you believe you'll retire one day and convert that second home to your primary residence.

Or you may have financial motivations uppermost in your mind. If this describes you, make sure you check out all the angles before succumbing to the fast talk of a resort salesperson. Buying a vacation home to avoid rising rents might make sense in some areas, but not in others; it often costs the vacationer less to rent the nicest house in a given community for a month than it costs the owner to pay the mortgage, taxes and maintenance on that same house for a month, particularly in the early years of ownership.

Price appreciation is another matter. Some people buy in a given vacation community because they've witnessed firsthand a rapid rise in home prices (and probably rents, too) over the previous several years; they want to get in on the action. Carefully selected homes in the most sought-after communities can, in fact, appreciate nicely, making them good investments as well as nice places to spend a vacation. But appreciation is highly variable from region to region and resort to resort. Some who hastily bought timeshares or resort houses from persuasive salesmen have found they can't even recover their original investment in the slender resale market.

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