Long-term considerations when buying a vacation property
By ATB Wealth 16 October 2020 3 min read
If you’ve ever been on a vacation that seemed like the perfect slice of paradise, you’ve probably also skimmed through the local real estate ads or willingly had breakfast with a timeshare representative.
Leisure property, whether it’s a dream home in a warm climate or membership in a timeshare organization, can be a lot of fun—but it’s also a big investment. Due to COVID-19 travel restrictions, many Albertans are choosing to look closer to home in the Rocky Mountains or the interior of British Columbia. That means spontaneous desires need to give way to proper planning, so your investment isn’t squandered and future vacation time isn’t spoiled.
Here we highlight a few considerations to help you make the most of your leisure property—in every sense of the word.
Asset vs. expenditure
As the saying goes, “buy land—they ain’t making any more of the stuff.” Like other forms of real estate, leisure properties can appreciate in value and they can be a valuable tool to build your long-term wealth. However, it does not have to be one.
Many clients are perfectly happy spending most of their vacation time in rental accommodations—some of them are big fans of renting travel trailers, too. There’s also the option to buy a property without regard for its long-term investment prospects, as long as the cost is factored into your long-term financial plan.
Such choices come down to individual preference. Whether you want to see a return on your expenditure plays a big role in selecting the right leisure property.
Fad vs. longevity
Leisure property is closely linked with how we want to spend our free time. Before you start looking at specific properties, it can be helpful to sit down and make a list of activities you plan to do while staying at the property and the surrounding area.
For example, does your list includes golfing, catching baseball and hockey games live and enjoying good weather? These types of questions can help narrow down your search for a vacation property. If you answered yes to the question above—Arizona may be a possibility, but Mexico would not.
Making your own list can help you search more efficiently for the property that works for you, and lower the odds that you’ll buy something that gets begrudgingly worked into your travel plans in the long run. We all know someone who owns a lake cottage that seems more of a burden than a boon to them.
Full ownership vs. partial ownership
Buying leisure property doesn’t have to mean purchasing a specific piece of real estate. The classic alternative option is a timeshare, which is a way to own a piece of a vacation property or properties.
Timeshares are usually run by property management businesses who sell memberships. Membership can entail a wide range of benefits, including the right to spend time in a portfolio of vacation properties. This can make timeshares a good choice for someone who doesn't like to vacation in the same place more than once.
However, timeshare memberships often come with restrictions.You might only be able to use certain properties for one specific week a year, for example. Or, your membership might require renewal after a certain number of years.
Fractional ownership is an evolution of timeshare ownership that attempts to address some of these impediments. As the name suggests, fractional ownership involves purchasing a portion of a vacation property. Like a timeshare, the ownership is usually coordinated by a dedicated property management firm. Unlike a timeshare, customers receive ownership in specific properties. Some fractional ownership businesses also offer the option to vacation in different locations.
It is important to note that while fractional ownership does address some of the common complaints about timeshares, it comes with its own potential hiccups. For instance, you’ll never meet your fellow property owners. If the thought of buying real estate with complete strangers makes you uneasy, fractional ownership may not be for you.
These are just some of the aspects of vacation property ownership to consider when purchasing a home away from home. Take the time to think through these points and others before you start your leisure property journey, and you’ll be on your way to years of enjoyable and rewarding vacations.
Content created by: Mark Dupperon, Sr. Financial Advisor, ATB Securities Inc.
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