Can You Afford a Vacation Home?

Dreaming of your very own beach house, cabin (or cottage, depending on where you live) or mountain chalet?  Before you sign the dotted line, be sure to ask yourself these 10 questions:

1.  Are you on track for retirement?

If not, it’s hard to make an argument for buying a second property.  For most people, saving for retirement should be a top financial planning priority.  If you review your current financial standing and find that you are on track for retirement, take a step back and consider your other financial goals: are you saving for your children’s college education, a remodeling project on your primary home or some other want or need?

If so, you’ll need to calculate whether you can afford to save enough to meet all of your financial goals.  If not, you’ll need to prioritize and possibly sacrifice less important goals for the ones that matter most to you.  A Certified Financial Planner™ (CFP®) can be invaluable in helping you make this decision.

Is a second home a smart investment for you?

2. Will you pay cash for the second home or take out a mortgage?

The option that’s right for you will be dependent on your financial situation. If you can secure a good interest rate on a mortgage, it may be prudent to take on debt rather than cash money out of your investment portfolio, if its projected earnings exceed the mortgage interest rate.  Also, mortgage interest (and property taxes) on both first and second homes may be claimed as an itemized tax deduction for most taxpayers.

3. Is the second home located within driving distance of your primary home?

If not, you’ll need to account for the transportation costs of traveling to and from the property, plus additional transportation costs while you’re there.  Will you keep a vehicle at your second home?  Will you need a rental car?  Is the home in an area where you can rely on public transportation? Any of these factors could have an impact on your budget and the amount you’ll have to contribute toward a second home.

4. What additional expenses will you incur when you visit your second home?

If it’s a lake home, you may consider buying a boat, jet skis and/or other water toys.
If it’s a ski chalet, you’ll likely need to factor in the cost of lift tickets.  If it’s on a golf course, you may consider joining the golf club. You get the picture; expenses for vacation activities can add up quickly, so make sure you figure them into your budget.

5. Have you considered property taxes and homeowners insurance?

Many vacation homes are in locations with high property-tax rates and/or high property-casualty rates, due to risk of hurricanes, floods, forest fires and other natural disasters.  In the case of the latter, you may face much higher insurance premiums.  It’s a good idea to obtain homeowners insurance quotes on properties in these types of locations before making an offer on a specific property.

6. Have you accounted for home necessities?

A second home will require a second set of everything — dishes, pots and pans, sheets, towels and more.  Maybe you have plenty of these items already and can easily stock up your vacation home and still have enough to get by comfortably.
But if you don’t have a surplus of home goods, or you’re the type of person who will want new, matching dishes and linens for the new home, be sure this is reflected in your budget.

Also, unless the second home you’re purchasing comes fully furnished with pieces you’ll continue to use, you’ll need to factor the cost of new furniture into your budget.  Don’t forget mattresses, appliances, possibly another lawn mower (more on this below) and other items.

7. Who will take care of ongoing maintenance responsibilities for your second home?

If your home is not part of an association that manages lawn care, weeding, tree trimming and other yard work, you’ll need to consider whether you’ll have time to keep up with these tasks on two homes (if that’s even feasible, based on the location) or factor in the cost of hiring someone.

8. Can you rent out the home to garner an income stream?

If you’re interested in renting out your home when you’re not using it, you’ll need to research reasonable rent prices for the area and assess how often you can expect to have the property rented out (based on location, competition, etc.). Additionally, you’ll need to decide whether you want to be the property manager and work with renters directly, or outsource property-management duties to a third party.  Of course, if you hire a property manager, their fee will need to be factored into your budget, as well.

Also, if you plan to rent out your home for 15 days or more during the year, you’ll need to claim any rental income on your tax return.  On the plus side, you’ll also be able to deduct expenses — such as utilities, maintenance and insurance — against the rental income in proportion to the number of days the property was rented versus the number of days it was available for personal use.  Keep in mind that you’ll need to keep good records of these activities for tax time.

9. Have you considered the potential tax bill of a future sale?

If you plan to sell your vacation home in the future, any profits you receive on the sale will be taxed as a capital gain.  Unlike your primary home, taxable capital gains on a second home are not limited to amounts in excess of $250,000 for single filers or $500,000 for married filing jointly.

10. Are you prepared to finance future home improvements?

Lastly, be sure to factor in regular maintenance and upkeep over the years you plan to own the property, keeping the age of the home in mind.  According to, you can expect to spend at least one percent of your home’s value per year on maintenance and repair.1

If you consider all of these factors and still decide to purchase a vacation home, be sure to carve out plenty of time in your schedule to enjoy it — because you’ve earned it!


Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Jordan Lochner Mills

CFP® | Senior Financial Advisor

Jordan Lochner Mills, CFP®, is a Senior Financial Advisor for Wipfli Financial Advisors in Minneapolis, MN. Jordan focuses on personal financial planning and investment management for individuals and families, and also specializes in planning matters related to women investors and retirees.

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Can You Afford a Vacation Home?

time to read: 4 min