When deciding how much to spend on a vacation home, it’s important to consider not just the upfront cost of the property, but also its ongoing expenses and maintenance costs. Here is a guideline to help make sure your vacation home doesn’t become a financial burden:
Set a budget: Before you start property-hunting, decide on a budget you’re comfortable with. This should include not just the purchase price of the vacation home, but also ongoing expenses like property taxes, insurance, and maintenance.
Calculate expenses: Research the area where you plan to buy and find out the average costs of utilities, property management, and other expenses. Factor these into your budget so you have a clear idea of what your total costs will be.
Consider rental income: If you plan to rent out your vacation home when you’re not using it, factor in the expected rental income when deciding how much to spend. Keep in mind that rental income may vary by season, so be realistic in your projections.
Don’t overspend: As a guideline, it’s generally recommended that you don’t spend more than 10 percent of your net worth on a vacation home (not including the down payment). This can help ensure that your vacation home doesn’t become a financial burden.
Keep future plans in mind: Consider your long-term plans for the property. Are you planning to keep it in the family for generations to come? Or do you envision selling it in a few years? Your plans can impact how much you want to spend on the property.
Overall, it’s important to approach buying a vacation home with a clear understanding of your budget and overall financial goals. By following these guidelines, you can ensure that your vacation home is a source of joy, not stress.