Friday, October 12, 2012

Vacation Home Investing Part 1

Why buy a vacation home?  Why buy a cabin in the 256De_geldwisselaar_en_zijn_vrouwwoods?  This is a question many people ask.  Isn’t it safer to put your money in CD’s, stocks, and annuities?  Or even to keep it in a sock under the bed or hide it in a hole in the ground?

These are all good questions and maybe my story will provide you with some answers.  Note:  Half the time my husband thinks I’m crazy for spending every bit I earn and then some.  (Note to self:  Am I crazy because I think other people think I’m crazy, or just paranoid?)I’m not always good at articulating all my reasons and I’m not sure  my response will be complete, but here goes!

I have always felt compelled to give to poor people.  By this I mean people who are unable to earn a living wage.  However, I have little personal income and some years ago my husband--who rarely tells me “no”—put a halt to my plan to give away an extra 5-10% each year until I reached a 90% donation rate with our income.  So I dropped back to 10-15% and looked for other ways to contribute. 

Studies have shown that 80% of funds spent in a community directly benefit the people in that community.  The amount that I spend on a vacation home for utilities, appliances, contractors, furnishings, security system, and everything else directly benefits Chillicothe and Waverly and Ross and Pike counties and the people who live there. 

Think about it.  When you pay money to a retailer, some of what you pay goes to taxes which benefit the city/village and county, some to employ people who now can spend money at retailers which benefits the city/village, the county, and more people.  And when you pay money to a local contractor, they usually spend it in the area in which they live.  So when I pay the plumbers and other contractors, I know where that money will likely stay:  in Pike and Ross counties.  I am funding businesses that fund other businesses and the owners and employees are the ones that benefit.

There’s another reason I wanted a vacation home.  For a several years we vacationed at a state park cabin.  I enjoyed the scenery, the trails, the lake, but the bed was very uncomfortable and the second bedroom had only for bunk beds.  The first two years we slept on the floor on an air mattress because the bed was so uncomfortable.  With the light from the sidewalk shining in, the roar of car engines, the bang of car doors closing, and people walking and talking outside our door as they passed the cabin, it was difficult to sleep which is one of my primary goals for a vacation.

The final year we stayed at the state park, we took the mattress off the bed and leaned it against the bedroom wall.  We used our air mattress on the bed.  That year, the people in the next cabin—its deck was directly across from our bedroom window—carried their radio outside and sang along to country music, loudly and out of tune as we tried to sleep.  In the evenings before bedtime, I would gaze at the walls of the cabin and dream of repainting and adding artwork.  A cabin we owned would have two full bedrooms with the same mattresses we use at home, no cars pulling in, no one walking by at night, no one singing out of tune.  We would be able to sleep. 

Finally, I don’t like to pay taxes.  We are in a low tax bracket but I would would still prefer to send as little money as possible to our wasteful out-of-control government.  Or to put it another way, I would rather fund people than institutions.  I asked an accountant how I could lessen our taxes.  The only practical solutions were to purchase a building and move my business there or start another business.  I did not want a building for my business and one business takes most of my time; another business was out of the question. 

But what about a vacation rental?  I love real estate and I could have a vacation place to enjoy for a couple of weeks each year and rent it in the interim.  That’s a business that would provide a personal benefit and still give me a tax deduction. 

How has it worked out, you ask?  The first couple years were difficult and costly, but we did get a small tax refund for the first time in years.  I have never enjoyed organizing or bookkeeping, and the cabin has increased those duties.  But it’s also a joy.  I am there almost weekly to work, but the greenery and quiet are a welcome break from my other life.  In addition, most of our pre-vacation planning is gone.  We don’t have to plan ahead for a one or two day vacation and even if we take an entire week, there’s very little planning involved. 

Should you buy a vacation rental second home?  Stay tuned and I’ll tell you more to help you make that decision.


Picture by Marinus van Reymerswale (circa 1490/1495–1546?) [Public domain], via Wikimedia Commons

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