I’m not sure where I first heard it, but whenever I get the urge to “invest” in a lake place, or do something similarly extravagant, I always fall back on this saying:
“Own your investments and rent your fun.”
I’ve mused in the past about buying a vacation home, but the harsh reality is that such endeavors are rarely as wonderful as you’d expect.
Yes, it would be great to have a weekend getaway, but second homes can easily become a money pit. You need to furnish them. You need to heat and cool them. You need to pay property taxes on them. You “need” to buy a boat to tie to the dock. Etc., etc., etc.
Sure, you can offset a portion of the costs by renting your place out, but let’s be honest… The most attractive rental periods are when you’d most like to use it yourself. Plus, there are tons of headaches associated with being a landlord, even if it’s just part-time.
You also need to cut the grass, trim the shrubs, and otherwise maintain your weekend getaway. These things take time and/or money. And for what? So you can be saddled with an illiquid “investment” that will throw your portfolio out of whack, and will also likely underperform the alternatives?
Instead, I suggest that you do what we do. Rent your fun. Instead of “investing” in a lake house, spring for a week’s rental every once in awhile. Instead of “investing” in a condo at the beach, rent one over Spring Break. You get the idea.
Yes, these things sound expensive – and they can be – but if you consider the alternative, they don’t look so bad. You get the fun without the maintenance headaches, the extra mortgage payment, the extra insurance policy, the extra property tax bill, the extra… Everything.
Don’t get me wrong, I’m not writing this to encourage people to take vacations they can’t afford. Rather, I’m writing this to encourage people to consider their alternatives, and to avoid justifying an huge impulse buy that they’ll like regret as a “investment” in their future.
Instead, you need to develop a clear investment plan. Look at how much time you have until retirement (or whatever other goals you have), consider your ability and need to take risk, and so forth. Then put your plan into action.
If you want to invest in real estate, fine. But realize that it’s a business, and that buying a place at the lake on the expectation that it will appreciate like crazy isn’t the same thing. Not even close.
Own your investments and rent your fun.