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Four Reasons Owning a Vacation Home Is a Good Investment

Published March 30, 2016

A vacation home can be about more than parties and down time; after reading what some of the best real estate minds have to say about the benefit of vacation homes as investments, you’ll see the potential for yourself as well.

Owning a vacation home is about so much more than summer trips and time with the kids. The reality is that if you handle this purchase properly, this property could be an investment that pays dividends for years to come. Unfortunately, if you’re not up to speed with all of your options, maximizing your return on investment (ROI) will be much harder to achieve.

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If you’re considering the possibility of owning a vacation home but are still on the fence about taking this fiscal plunge, don’t worry; you’re far from alone on this front. Rushing into a major purchase like this is never smart, so being patient and thorough will serve you well.

To help you make an educated decision, here’s the top four reasons owning a vacation home is good for your bottom line going forward. Instead of sifting through the contrived and generic responses that litter the web and cover “fun in the sun” and getting away from the hustle and bustle of your daily life, let’s break things down with a long term fiscal viewpoint as a discussion guide. This way, you’ll make the best financial decision possible when you sit down with your realty expert and explore all of the options available to you.

Building ROI via Renting

The first reason on the list completely removes your time in this vacation home from the equation. As odd as this may seem, the Personal Finance editors over at Kiplinger’s business advice and forecast column point out that vacation homes serve as a prime financial tool for making a huge return on your investment via rental and time sharing agreements.

Essentially if you’re looking beyond the idea of getting some time in with your family away from the city, owning a home in a prime destination – like a lakefront community or a golf resort – can be a lucrative investment. Sure, you won’t make all of your money back right away, but over the months and years following your purchase of this home, the money spent on this property will eventually break even and morph into a net profit thanks to each monthly rental payment.

The Future Home Proposition

Who says you have to let anyone else live in your vacation home to make a profit? In her look at the fiscal benefits of owning this type of home, Jean Folger of the Investopedia blog explains that buying low on a vacation property could set you and your family up for a veritable windfall should you ever decide to sell your current home and move to a new locale. The idea focuses on minimizing costs via upfront purchases now and reaping the rewards on the sale of your first home later.

Think of it this way: if you buy a vacation home now at a great deal and pay it off over time, there’s no rule that says you can’t make this house your primary residence down the road. The best part is that you’ll skip all of the fuss and headaches that comes with buying and selling a home simultaneously. If you time the market just right, you could end up with the dream scenario of owning two homes that have appreciated in value, thereby netting you gains on the sale of your first home and also a better situation when you move into your new primary place of residence.

Diversifying Your Portfolio

If you’re not looking to set yourself up for a future place to call your own permanently, Folger also notes that there are still plenty of reasons to invest in this form of real estate – specifically in order to diversify your portfolio. If you know anything about finance, you know that navigating the various markets and exchanges is all about mitigating and minimizing risk while also generating increased wealth and fiscal stability.

Because of this base equation, owning a vacation simply for the sake of diversification shields your portfolio from the threat of being too involved in one investment arena, while still keeping yourself open to the opportunity to make positive gains in a market that is far from stagnant. Sure, there’s no such thing as a completely safe investment, but you’ll find few alternatives that match a vacation home in terms of risk mitigation and potential significant ROI.

Finding a Little Tax Wiggle Room

The experts working on behalf of the Early to Rise financial news agency report that this kind of investment offers up a benefit that’s hard to quantity at first glance, but that creates a tangible positive effect on your bottom line almost immediately in the form of favorable tax deductions.

When tax season comes rolling around, the fact that you have a second home tucked away within your financial portfolio means that the mortgage interest you pay on this vacation property is completely tax-deductible. The only catch here is that you have to pass the personal residence rule, but hitting this benchmark shouldn’t be too hard, as the personal residence rule only requires you to spend 14 days a year at this home. Once you’ve reached this number, you can then deduct up to $1 million in mortgage interest between your primary and secondary homes. Not too shabby in exchange for a guaranteed two weeks of vacation with your family and friends, right?

Obviously, you never want to rush into this kind of life changing purchase based on a spur of the moment impulse. However, with this information in hand, there’s no doubt that you are better prepared to make a smart choice than you were when you started reading this article. From the value of renting out this home to getting a reprieve on your taxes next April, it’s hard to argue against the case vacation homes make as a solid financial investment.