Rent or buy?
You're retired. You enjoy living where you are now, but you want to get away for a couple of months every winter
to play golf and sit in the sun. Should you rent or buy your Florida, Arizona, California, etc. vacation home?
Does it make good financial sense to purchase a vacation home even for as little as $50,000-$75,000?
Base cost of ownership. No matter what you buy, condo, single family house or mobile home, there are costs you will incur every month even if the place is not being used:
taxes, insurance, maintenence and, in some cases, lot rental. Two hundred dollars ($200) per month (twenty-four hundred dollars per year) is not an unreasonable amount to budget for these expenses.
For $2,400 you could rent a very nice condo or house for at least one month. Indeed, some mobile homes could be rented for two or three months for $2,400!
Other costs. If you pay cash for a $50,000 property, one of the hidden costs you will incur is the interest lost on the funds
that you used to purchase the property. Simple 5% interest lost on a $50,000 certificate equals $2,500/year.
Keep your $50,000 in the bank and use the $2,500 income it generates to pay the second month's rent.
If you finance $40,000 of the purchase with a ten year mortgage @8.0% you will make payments of $485/month
and pay a total of $18,237.00 interest over the ten year period. Once again, the interest you don't pay and
the income from the $10,000 down payment you didn't make will take care of the second month.
Ownership as an investment. While it's true that there is the potential for rental income from your
property, the peak season for rentals will be the months when you'll want to be there. Also, as an absentee
landlord, you'll need to hire a management firm to take care of things for you. Bottom line is that you probably won't
net much rental income.
ConclusionIf you'll be happy getting away for two or three months, the best thing to do is rent rather than purchase a $50,000 - $75,000 property.