Reader Case Study: The Black Hole Second Home

jackson_hole_thmbThe Vacation House. A home away from home, where you get to escape on weekends to live a fantasy life that is better than your real life. It is a concept that seems to be coming up more and more among my friends and family these days, as people get older and wealthier and start to look for more things to spend money on.

Mr. Money Mustache’s advice? Resist the temptation and put that effort into your real life instead. By focusing and simplifying things, you bring the best parts of the happy fantasy into your real world, with the added benefit of much faster wealth accumulation. Then you can move to the idyllic location of your choice, without the need to buy two sets of everything and commute between your houses along with all the other helplessly indebted cottagegoers.

Our next story is an interesting variation on this theme.

Hello Mr. Money Mustache,

Background: I am one half of a dual Merchant Marine couple who is based in Seattle. I am in dire need of input on whether to sell my rental/vacation condo in Jackson Hole, Wyoming. 

First of all, I have never made money on the thing, but have enjoyed living in it myself between 1-4 months per year. I love the area and have connections there. I have tried various rental schemes with many companies to rent it out most of the year, but get time for myself there too. Nothing comes close to covering the mortgage and HOA dues. Even if I rent it out year-round in the expensive short-term rental pool, I cannot cover my expenses.

A few stats and a bit of history:
The condo is a 1 bedroom, 1 bath ground floor end unit, 766sf in an established neighborhood on the West Bank of Jackson Hole
Purchase Price: $200,000 (back in 2004)
Current Market Value: $280,000 (approx)
Monthly Mortgage payment: $1194/month ($162k balance remaining @ 5.625% interest)
Property taxes: $1245/year
HOA: $3588/year (this includes cable and internet)

Water Utility: $976/year

The long-term rental rate in this area is only $1050-$1100/month, and while you can do ski rentals at up to $200 per night, I have found that the vacancy, management, and cleaning fees bring the average over a year down below that which you’d earn with just a long-term rental.

I’ve owned this property for 9 years, and have been considering selling it for the past 7 years. I got greedy in 2008, thinking if it had gone up that much, of course it would reach the overpriced levels of Aspen, and beyond (at one point, my type of condo was on the market for over $500K!) As we all know, reality came crashing down before I sold.

Now that we are coming off the bottom of the market, I have finally realized I hate this debt, and I hate how much I have to work for it. I am in no way underwater, but adding up all I have spent over the years, I am $50,000 in the hole, which is hard to swallow. In actuality, I will walk away with about $70-$80,000 in my pocket after taxes, agent fees, etc…and free up $19,000 a year in mortgage/fees/utilities I will no longer be paying.

To me, this means I can either add this to my savings, or I can go to sea 1 month less per year. Either way equates to greater freedom.

Despite the answer being obvious, (SELL!!!), I can’t help going back to the old way of thinking that the market is just going to go up next year, surely enough to keep the thing ONE MORE YEAR.

Ugh. I just don’t want to be a fool anymore, but I am afraid I am shooting myself in the foot no matter what I do.

Other relevant information: 

Age: early 30s
Income:  My own contribution to our annual income is $70-$80k, if I spend about 4-5 months of the year at sea. Partner earns a similar amount
Retirement savings: $175,000
Annual Savings rate: about $15,000/year in retirement accounts
Have 3 months emergency savings (equals 6 months if I sell the condo)
have access to $15,000 line of credit with zero balance
Partly own another house, with a mortgage, in Seattle, which I live in primarily. My share of the mortgage = $800/month
No credit card debt, student loans. or other debt outside of the mortgages.
 My only landgoing motor vehicle is a 2000 Honda Insight that gets about 60MPG

Thanks for inspiring me with this blog.


Dear Pirate_Wench,

First of all, you’re still in a great starting place, so congratulations on that. High income in a neat job with loads of time off, no emergency debts, reasonable car, and a good start on the savings.

But you are right, that Jackson Hole condo is a disaster. The rent is RIDICULOUSLY low for such a high-price/tax/HOA unit!

Just for comparison, just today Mrs. MM helped a friend buy a rental house in my area. It’s a mint-condition 2-bedroom brick house with a nice yard, garage, etc. Price is $170,000, HOA fees are $0, annual property tax is $1300, and monthly rent will be $1300, with the renters paying all utilities themselves. So the return after property taxes is about 8.4%. And my area is not a very good area for rentals, compared to many other US cities.

For your $280,000 condo to provide similar return after the $480 of monthly fixed costs, you’d need a rent of at least $2440 per month. Since you have never even cracked half of that, it is safe to say it is a terrible, disastrous rental!

The bad news is, you need to sell it. The great news is that it looks like you have seen some great appreciation on your condo already – $80,000 is nothing to sneeze at.

In today’s US real estate market, I’d say we’re not just “coming off the bottom” – we’re in the full fury of a huge seller’s market, which means it is a great time to sell. Prices may keep going up, or they may ease back down as interest rates rise, but either way there are better places to make money than in a cash-flow-negative rental house. And you can still visit Jackson Hole whenever you like – by taking that $80,000 in cash out of the house, investing it elsewhere, and renting by the month whenever you have the urge to visit there or anywhere else. Even better, try out some home exchanges, as your desirable Seattle home would be of great interest to people everywhere.

The difference to your savings rate will be immense – probably over $25,000 per year, which means you will be more than doubling your savings rate, or halving your time to financial independence. Congratulations!

For the rest of us, a great general lesson can be learned from this:

Buying a second home is usually a bad financial proposition, because you are instantly creating an average 50% vacancy rate in each house. And that’s before accounting for the duplicate furniture, appliances, and all the commuting you’ll do between them. In business, idle resources are a red flag, and they should be in your personal life as well. Instead, focus on making your own house the one you want to live in, having more fun close to home, and renting vacation spots when you need them.

Buying an investment home is a different story. If you can find a house that practically rents itself, and generates a strongly positive monthly cashflow, you will do much better. And if this home happens to be in a beautiful spot, and you can book some of its time for your own vacations, then you may do so with my blessing.

Once you reach the stage of Infinite Wealth, and you have already bought your freedom from mandatory work, you might be able to justify things like extra houses and yachts that sit around idle most of the time. But I’m hoping that by the time you get there, you will have shed the flabby materialist desires and moved on to such a happy stage of life that you find yourself wanting less stuff rather than more.

Related Reading:

After posting this, several people have written in with emotional descriptions of the happiness brought by their own second homes. Points like these are valid, because the vacation spots were serving as a gathering place for friends and family, which really does bring more happiness.

But then how is it that some of us can some of us be equally happy without owning vacation houses? By figuring out other ways to accomplish the underlying goal – spending time with people you care about.

The following two articles can help separate the consumption from the happiness:

What is Hedonic Adaptation and How Can it Turn You Into a Sucka?

Is it Convenient? Would I Enjoy it? Wrong Question.

  • Simple Economist August 18, 2013, 8:26 pm

    This is a concept of much debate in my household as well. Several members of my family have second home vacation properties that are occasionally rented out but never cover the costs. The obvious answer, from a purely financial perspective, would be ‘sell’! But I believe there is perceived societal value and privilege that comes with owning a ‘second home’. Even though it makes no sense and is often a financial sink hole, many view them as a sign of wealth. The great news is, this allows for awesome opportunities for renting in places where owning is redicousually overpriced. Let someone else take to the hassle, stress, ‘status’ and maintance and enjoy the wonderful inefficiencies we have in America.

    • Done by Forty August 19, 2013, 12:04 am

      My father is in the process of purchasing a 2nd home now, also with plans to rent it out while still being able to stay in it himself. It is a point of some stress, for me, as the numbers just do not work out. But I agree with your point that it seems to be a sign of wealth, as well as MMM’s point that sometimes people are just looking for new ways to spend their money.

      We, too, are looking to buy a rental property, but qualifying as a cash flow positive property is a must have for it to be considered. I am not interested in dealing with a lot of stress and putting in a lot of work just to lose money. :)

      • Free Money Minute August 19, 2013, 4:19 am

        If you can convince your father that he can easily rent out another place in the same location for a fraction of the cost over the course of a year, you will have made some progress. He could probably find the exact same rental every year that he could go back to if he likes familiarity. I like variety, so I would want to stay in a new place every year. If it is status issue, you may have a hard time reaching him. Best wishes.

        • Rich August 22, 2013, 12:49 pm

          That (renting the same place) is something my extended family has started doing for our annual reunion: two vacation houses, right next to each other, on the water in Lake Ozark, Missouri. Owning them would be a huge hassle, but they’re great to rent for one weekend a year!

          Plus, if we decide to try something different in a few years, we can!

          • Rich September 3, 2013, 9:42 pm

            I just came back to re-read this article because my folks are seriously considering buying a vacation home in a nice spot about 90 minutes away. They’re already retired (MMM’s “Infinite Wealth” stage) and would be buying it as a place for themselves, my family, and my sister’s family to use whenever we want to get away. It’s within about a two-hour drive for all of us.

            So… really, it meets MMM’s criteria. They are at the stage in life where they’re looking for ways to pass their wealth on to their kids & grandkids, and this is one more way.

            FWIW, they also give quite generously to their church, other charities, and other people. They lived very responsibly, made wise financial choices, and have been “blessed” in unexpected ways on top of their own planning. Now they’re passing it along.

    • Debt Blag August 19, 2013, 11:53 am

      This would be nice except I’ve found that these same people are very unwilling to rent their homes for short-term rentals for anything less than an unreasonably high amount of money — even if they’re losing money on the whole.

      I wonder if they think that one thing they “buy” when they lose money on a vacation property is that when they visit, they get the convenience of not having to find a place and the comfort of staying in some place that’s more like home to you. Better them than me, I say :)

  • Michael August 18, 2013, 8:57 pm

      I’m amazed at how little correlation there are between home values and rent values. Where I live you can get double your monthly mortgage payment if you rent out your house. I wouldn’t want the burden of second home unless it was a huge financial asset.
    • win August 19, 2013, 9:13 am

      Where do you live?

      • Natalie August 19, 2013, 5:53 pm

        My neighborhood sells for 55k and rents for $900 per month. I live in SE Las Vegas.

    • Meg August 19, 2013, 10:15 am

      In my area of NYC, home values and rental prices seem to exist on two alternate planets. My apartment would sell for $450,000 today, with monthly common charges of $800. It would cost probably $3000/month to own, assuming 20% down on a 30 year mortgage. I pay $1750/month in rent for the same apartment.

      Needless to say, we won’t be getting wealthy via rental properties around here.

      • Aaron August 21, 2013, 3:22 pm

        Nope, but you will get rich by renting instead of buying!

    • Debt Blag August 19, 2013, 11:55 am

      Very much the opposite in New York. If I were to buy right now, I’d end up paying about double what I could get in rent. Presumably, everyone on the market right now is very much banking on property values skyrocketing around here.

  • Doctor Vacation August 18, 2013, 8:59 pm

    Good advice in general, 3M, but one thing folks should consider; targeted allocation of capital can – in admittedly rare cases – reduce annual living expenses. If you find a good buy in a popular resort area – especially if you’re handy and find a low priced fixer-upper – you can either a) use the condo/townhouse/home for your weekends and/or vacations, or b) rent it out to others. In certain cases this can at least break even, cashflow wise, so you’re able to participate in a run-up (or to be fair, a downturn) in real estate prices, and at the same time enjoy a “home away from home.”

    Of course you also need an outstanding property management company, so you don’t have to deal with any of the day-to-day stuff, ’cause what’s the point in that?

    In general, though, “rent” instead of “own” your vacations.
    -Dr. V.

  • Mother Frugal August 18, 2013, 9:00 pm

    Pirate Wench,

    Your writing, “I have finally realized I hate this debt, and I hate how much I have to work for it,” says it all. Sure, you could wait ONE MORE YEAR to see if the market goes up. But you’d be paying the mortgage for that year, too, while making that gamble. Don’t keep something you hate any longer than you need to. I’d sell that puppy ASAP.

    It sounds like your real attachment is to the Jackson Hole area, not this condo. I totally get that. Maybe you could figure out some less pricey housing alternatives there, like MMM suggested.

    Congrats on being in such good financial shape, otherwise.

    • Kira August 21, 2013, 9:15 am

      That is very true! If you wait another year, you have to sell it for about $15,000 more than you need to get today in order to have netted the same amount, since those interest charges and HOA fees are just down the drain every month.

      • Giovanni August 21, 2013, 5:51 pm

        Actually it would have to sell for about 27k more to break even as I pointed out in my post below:

        “the Jackson condo costs about $20k a year so we can figure out how much more the condo would have to sell for to break even on holding on another year. To do that you would have to net 20k after commissions, closing costs and taxes so a little math:

        Commissions and closing costs +/-8% so 20,000 / .92 = 21,739 to break even before tax. Depending on how much the property has been depreciated your tax on the gain will run somewhere between 15-25% so for round numbers let say 20%- 21,739 / .8 = 27,174. The property has to appreciate over $27k just to break even and that’s almost 10% appreciation in one year based on a projected value today of $280k. And of course that’s if congress doesn’t raise taxes between now and then.

        So by hanging on for one more year you will be betting that the condo market stays good in Jackson, your condo appreciates 10% in a year and congress doesn’t raise taxes all just to break even. If you factor in your time and effort and a risk premium the place will have to appreciate even more just to make it worth your while. How confident are you that it will?”

  • PR August 18, 2013, 9:07 pm

    I seem to not have any luck finding rental property deals like you explain in Orlando without buying in a very bad neighborhood. Any suggestions? Another state?

    • RE Investor August 19, 2013, 12:30 pm

      I live in Louisville, KY and I have my own rental business. I buy primarily foreclosed properties, fix them up, and rent them out. The gross rent that I get is about 150% of the escrow payment (if you include the final price of the house fixed up for a 15 year loan.)

      Hope that helps.

  • Nicholas Sarwark August 18, 2013, 10:04 pm

    “Now that we are coming off the bottom of the market, I have finally realized I hate this debt, and I hate how much I have to work for it.”

    Like the old story about the man who told his broker he couldn’t sleep at night for worry about the stock market, and whose broker told him to sell until he could sleep, if you hate the debt, get rid of it. Completely separate from the actual math (though the math here sucks too), life is too short to have debts that you hate.

  • Eric August 18, 2013, 10:10 pm

    This month marks 10 years that I’ve lived in Jackson Hole. My rent is a fraction of what Pirate_Wench is getting, so I understand what they’re going through. The HOA fees here are insane! I’ve considered moving away a few times over the years. One thing I realized pretty quickly is how easy it is to visit and crash on couches or perhaps stay in monthly rentals for just the price of maintenance. Pirate_Wench needs to flip their circumstance at look at the crazy deals they could get if they were visitors, especially if they’ve made a lot of friends here.

  • vern August 18, 2013, 11:07 pm

    When I paid my house off a few years back I planned on buying a second (vacation) home.

    But then one day while scanning craigslist and Airbnb I realized that you can rent a furnished house or apartment pretty much anywhere in the world.

    Seeing that was like a light bulb going off for me and we’ve been saving our money and renting when on vacation ever since.

    This is a very stress free way to go.

    • Insourcelife August 19, 2013, 8:06 am

      Exactly! Renting allows you to visit any place you want instead of going to the same place all the time and without having to worry about any maintenance and other costs or trying to rent your second home out. We just used Airbnb this weekend to find a house for a trip and it was great.

  • John August 19, 2013, 2:10 am

    This is my first post, though I am a regular reader of the blog and an admirer, based in the UK. The UK situation seems to me to be the same, though I know several people with a second home, apparently for holidays. These are either on the UK coast or in Europe (France, Portugal, Spain being favourites). I totally agree, that you have to buy two of everything, as well as paying for the thing. Rental income never seems to cover costs though everyone assumes it will when they buy the property.

    One other thing you have not mentioned, but seems to affect everyone I know is maintenance. You either pay cleaners, gardeners and decorators, or you have a whole lot of work to do yourself, and your “relaxing” weekends away turn into a procession of demanding jobs and hard work.

    For myself, I have just returned from two weeks in the sunshine at a marvellous, well-appointed cottage on the coast. The cost was modest, and I did not have to do a single piece of work for two weeks. I did, though, start wondering why all my friends owned their second homes, when I could hire one for exactly the time I wanted with much less cost and even less hassle. What is it about OWNING that is so seductive?

    • tct November 4, 2014, 10:16 am

      Some of us enjoy and look forward to working around our primary and secondary homes. I know I do.

  • Mrs EconoWiser August 19, 2013, 2:30 am

    My parents bought me a holiday home in Hungary (I live in The Netherlands and it’s a looooooooong drive). It’s in my name. They bought one for my brother as well. They thought of it as part of the inheritance while they’re still alive. Both houses hardly ever rented out. My parents are paying for all the costs until they die or sell. I can’t do anything about this and don’t want to hurt their feelings. When I get full say in things (there’s something in the contract, I couldn’t sell it without their legal consent) I’ll sell the damn thing asap and so will my brother. Oh, I’ve been there once in the past ten years….

    • Kenoryn August 19, 2013, 10:23 am

      Awkward. :/ Maybe you could get a long-term renter in there for now?

      • Mrs EconoWiser August 19, 2013, 12:45 pm

        My parents use it once a year and it’s a cottage in the middle of nowhere….

  • Elizabeth August 19, 2013, 3:43 am

    Excellent reader case study. Pirate Wench, it sounds like you’ve got your head on straight. Not easy to walk away from something like this.

    We bought a little house in Sicily a few years ago that didn’t really make sense. I hadn’t even visited the town before deciding to buy. But at $10,000 cash for a run-down little place I decided to chance it. Took another $10K to renovate, but it’s a quirky little place that we’ll be living in for a while next year, and pays a nice return when rented out for half of the year. Taxes are almost nothing because the place is so small (but with skylights and high ceilings and balconies, it feels larger). The key was finding trustworthy management for a great price.

    Would we do it again? Sure. But only with small niche areas like this one: in a region we really feel a connection with, and where every square foot is a good value.

  • Grant August 19, 2013, 4:28 am

    I’m amazed by housing prices in the USA! Talk about firesale!

  • GamingYourFinances August 19, 2013, 5:38 am

    Vacation houses rarely make sense financially. When you factor in the extra time commitment for cleaning/maintenance it becomes even less attractive. It is nice however to come “home” to a vacation home that’s actually yours.

    Personally it’s the fact that your vacations are now limited to one location that makes me avoid the idea of a vacation house. With so many wonderful places in the world to visit why pick just one?

    • Valerie August 19, 2013, 8:52 am

      I understand where you’re coming from, but wanted to put in a defense for the other side too.

      My family rented the same cabin on Grand Traverse Bay in Michigan for two weeks every year the entire time I was growing up ($400/week!). I took my first steps there, and the last time we went I was a senior in high school. When I was young I used to ask why we weren’t taking trips to Disney or the Caribbean like my classmates (rich area!), and my mom would always tell me that she wanted to be able to relax on her vacation.

      Because the setting was the same, we got to spend our time focusing on relaxing on the beach, hanging out with family, and creating traditions. Going to the cabin felt like going to an awesome second home, and even though we knew the towns really well, there was always something to go explore and discover. We cried … a lot … when the owners finally made the smart financial decision to sell the place. I still have heart-wrenching nostalgia for that cabin and those vacations. I would absolutely do the same thing with my (future) kids if I could.

      • Jeff August 20, 2013, 7:00 am

        If you need vacation to relieve stress then something probably isn’t right in your day-to-day life.

        • ted August 20, 2013, 8:37 pm

          Do you have any tips for those that are more stressed out on vacation than at work? What about someone who finds work more enjoyable than vacation?

        • Marcia September 7, 2013, 2:11 pm

          Where did anyone say anything about needing a vacation to relieve stress?

  • Mr. 1500 August 19, 2013, 6:11 am

    We considered buying a ski rental property and came to the same conclusions. The expenses (HOA, cleaning fees, etc.) never make it worthwhile.

    One thing that wasn’t mentioned in the article are special assessments. If (when) your condo unit needs new siding, windows or a new roof, prepare to get slapped in the face with a very large, one time fee (check the cash reserves with the association). It isn’t unusual for these to be $5,000/unit or more.

  • rjack August 19, 2013, 6:17 am

    I’ve never even considered buying a 2nd home. I feel like there are enough headaches and expenses with owning one home, why would I want another?

    • Emily Capito August 22, 2013, 1:35 pm

      Agreed. This seems like nonsense now, but there was definitely a time when the status symbol of a second home seemed alluring. Glad to have shed some of that “materialistic flab” in favor of freedom, flexibility, and lower overhead. Now on to the the other pounds that are still hanging on…

  • Ross August 19, 2013, 6:22 am

    A great analysis of an all too common american practice. I pry into the financial details of my coworkers vacation homes sometimes. Though they speak of them like sound investments, they are money pits.

  • jestjack August 19, 2013, 6:40 am

    Excellent article…My own DW has been “encouraging” me to buy a vacation home (little place at the beach)for the last couple of years. BUT for the life of me I just couldn’t make the numbers work. This article seems to support my findings. You might want to write an article on expensive RV’s as well. Can’t count the folks that I know that have purchased these huge RV’s with big price tags to “hit the open road”…only to discover that the units get 5-6 miles to the gallon and the rent in many campsites approaches $75…a night…No thank you…

    • Mr. Money Mustache August 19, 2013, 9:19 am

      Oh, man.. don’t even get me started on the ridiculousness of RVs for roadtrips!

      Just to start off, look at the depreciation rate on those things – you can buy a $250,000 shiny new one, an over a couple of decades its value curve will almost reach the same as a used Toyota Corolla of the same age. Especially if we see more increases in fuel prices.

      Buying an old used one and living in it full time on a piece of low-rent land, on the other hand, is one of the cheapest ways to get an eco-friendly home. And you can renovate the interior, just as easily as you can refurbish an old house.

      • jestjack August 19, 2013, 10:26 am

        Hmmmm….”buy an old one…and refurbish it….and place it on a low price piece of land”..This gets me to thinking…I already have a low priced piece of land…any experience rehabbing one of these? It may be fun and interesting. With ya on the value of these when bought new….value “falls off the table”….

      • Marcia August 19, 2013, 12:14 pm

        One of my coworkers is doing that. A refurbished bus. Paying $100/mo to rent a little piece of land behind one of our office buildings.

      • Beach Bum August 19, 2013, 4:12 pm

        We picked up a 1979 25′ RV off Kijiji for $2400. We have lots of guests we were looking for a trailer we could park at the back of the property so we could send our guests out there at the end of a night of socializing. The RV was close to the same cost at what comparable sized trailers were going for, and it rolls on it’s own! The mechanic was quite impressed on the overall condition of the motor and drive train. Note: Do NOT use RV mechanics, they wanted $300 just to look at it for a safety, a heavy truck mechanic can do all the chassis work and we paid was 1.25 hours at shop rate for the safety. $2400 for a guest house that sleeps up to 6 with a kitchen and bathroom? Not too bad I think…..

      • phred August 20, 2013, 7:14 am

        Buying a used RV and parking it on low-rent land seems to indicate the RV is basically immobile. Well and good as cheap housing
        But, why not buy a used mobile home instead? More space for the same amount of cash outlay. Or, even a 30 foot travel trailer and park it on the same low-rent land.? What am I not aware of here?

        • phred August 22, 2013, 9:45 am

          No-one knows??

          After mulling this over, my current assumptions are that land can be zoned against trailers, that trailers need site inspections, a cement pad, water & electrical hookups in order to be allowed to live in them, permit fees

          Comments, please

      • Uncephalized August 22, 2013, 6:23 pm

        We’re building one ourselves out of a used Chevy cargo van right now (we’re planning to live in it and travel around the continent for a couple years or so) It’s not cheaper and definitely not easier than just buying a used RV, at least not the way we’re doing it with a fully finished interior. But I’m learning a hell of a lot more this way–wiring, insulation, solar, plumbing, paneling, cabinet-building, etc.–I’ll be way better prepared to build us a little house once we figure out where we want to settle down.

        Also learning web design and development which I can do from anywhere. Your 50 jobs posts inspired me to get moving on that, MMM.

        If anyone wants to check out our progress click my username to go to our blog. Not much there yet but we are making slow progress and I’ve got a couple more posts in the pipe. :-)

      • Laurie September 2, 2013, 11:13 am

        Have you *been* to Taos County, NM? MAN, can you live cheep.

      • Sarah August 26, 2014, 10:14 am

        Or you could build or buy a tiny house and avoid the crumminess of rv construction. This is what we did. It cost $20,000 in materials to build, of which $15,000 was borrowed (student loan money at $3% interest, actually, but not a bad mortgage. We’ve lived frugal, low income lives as seasonal botany and archaeology govt. employees, with little savings up till this point ). we did almost all our own labor on the house. Square footage is cheep compared to the rest of the building costs, so these costs for materials alone are pretty typical, if not low, though it could have been done cheaper if we weren’t such construction newbies. It’s built on a flat bed 18′ trailer, and 140 square ft. not counting the loft where we sleep.

        We rent a place to park it for $350 a month including utilities, and house-sit for our landlords to bring it down even further, in an area where a studio apartment would easily cost us $1000 if we could find one, and a one bedroom $1500 a month or more.

        Examples of similar houses: http://www.tumbleweedhouses.com/, http://www.fourlightshouses.com/, http://seattletinyhomes.com/

    • Dogula August 21, 2013, 7:35 pm

      We LOVE our small trailer. Started with a second hand tiny one to see how it worked, and this year bought a slightly larger, brand new one. Second hand is usually better, economically speaking, but we’ve done too much fixing and wanted to try perfect to start.
      At $25K to purchase, we hook it to the truck and go wherever we want. If we want to spend money to have hookups in a park, that’s one option. Or we can go out into the middle of the desert somewhere for up to a week and be self-sufficient. Pulling it the truck gets about 10 miles to the gallon, not great, but the dogs and the toys go along, which isn’t possible flying to some vacation home a thousand miles away.
      Definitely has worked out well for us. And if we get a wild hair, we can run away from home any weekend on the slightest whim, unlike if you rent your second home out. . .perfect.

  • Melissa August 19, 2013, 6:46 am

    I’m in agreement with many here. A 2nd home never interested me. Why not make your own home a beautiful oasis that you can’t wait to run to?

  • Mrs PoP August 19, 2013, 6:56 am

    A couple of years ago my in-laws bought a house in our area of Florida (their primary residence is still up north until Mama PoP retires) when prices were super depressed. The idea was that they will retire to it in a couple of years, but that they would likely be better off buying the foreclosure fixer-upper then rather than waiting for full retirement and buying when prices had recovered.

    While financially their plan is probably going to be neutral or even in their favor – expenses for the 5 years that they’ll hold it between purchase and retirement aren’t likely to be more than the increase in prices that we’ve seen here (those increases have been insane the past few years!), I was surprised recently when Mama PoP commented about how wasteful it felt when she really thought about supporting two homes. Rather than it feeling like a luxury, she’s really looking forward to when they get to re-simplify their lives and live in one location again.

  • My Financial Independence Journey August 19, 2013, 7:05 am

    I wouldn’t pay for a vacation house at the moment as I don’t have nearly enough vacation time to warrant one. Renting out a condo for a couple of weeks is a much better option.

    However, fast forward to when I get close to retirement, I would love to have a summer and a winter house. There just isn’t one section of the country that I want to spend all year in. Summers in the Northeast or Midwest, and winters in Hawaii or Florida. That would be the best setup.

  • Meredith August 19, 2013, 7:09 am

    Does anyone have suggestions for books or articles about how to research a house to see if it is profitable to buy it as a rental property? I’m new at this and would appreciate any suggestions.

    • Henry November 26, 2013, 10:01 pm

      I highly recommend you check out Biggerpockets which has many calculators and articles about how much rent you need to get positive cash flow from a rental. I know some readers of 3M are members there too.

  • EL August 19, 2013, 7:29 am

    I agree to sell it and invest the 80K. The return on the sale of the property can pay for some great vacations year after year. Plus the 19K in future savings can easily get you 1 step closer to retire by 45.

  • Christine August 19, 2013, 7:41 am

    I’m looking to make my home like a trip away.. I totally understand that idea. We are looking at a home near a lake yet near the city. We’ll be turning our old home into a rental. Funny we were just doing this when you wrote this article.. what a coincidence. No need for us to escape anymore!

  • Chris August 19, 2013, 7:45 am

    How do we arrive at the 8.4% MM mentions here? And what % is good enough to say a rental ROI is okay?

    • Mr. Money Mustache August 19, 2013, 8:55 am

      For the 8.4% in the example, I took gross rent (1300×12 = $15,600), then subtracted property tax ($1300) and divided by the $170,000 purchase price.
      Other landlords calculate things differently, factoring in maintenance, vacancy, management, etc. The key is just to use the same method when comparing two properties to see which is better.

      It’s hard to decide what level of profitability is OK. But I think we can agree that a negative return is always bad, and you would at least want to match the 4.5% dividend rate (after ALL costs including maintenance and management) that you can get with, say, Vanguard’s VGTSX total international stock fund.

      HOA fees often destroy rental profitability, because a $300/month fee would pay the mortgage interest on $90,000 of mortgage balance at 4%. So a $90k condo with a $300/month fee would have to compete with a $180,000 stand-alone home with no HOA in a landlord’s mind.

      (It is true that condo HOAs deliver a few benefits like exterior maintenance, but I find the benefits in no way approach the cost, at least for a cost-savvy landlord who would not normally hire a crew to come blow leaves around with gas-powered wind machines once a week).

      • Rachel August 20, 2013, 1:42 pm

        So you use the purchase price as the base to calculate earnings on your rentals. I’m considering the possibility of keeping our first home (current home) as a rental when we “retire early” or selling it to realize the appreciation. But, I’m struggling with whether it makes sense to use the purchase price (original cash investment) or the current market value as the basis for determining the earnings return. I mean, technically, we could sell, take out all our original cash investment along with the appreciation and put it in VGTSX. So, would it make more sense to use the current market price, rather than the cash paid-in? What are your thoughts?

        • Giovanni August 20, 2013, 5:35 pm

          Rachel you hit the nail on the head when you said: “we could sell, take out all our original cash investment along with the appreciation and put it in VGTSX.”

          When considering investment alternatives going forward on an apples to apples basis, use the net proceeds from the sale of the house as your basis. The idea is that the house is worth what you would net after selling it and paying all the associated costs. And if you did sell it those proceeds would be the funds to invest going forward with an alternative investment.

          For example if you could net 150,000 selling the house that would be the number to base the rental returns on as well as the returns from buying VGTSX so to get a fair comparison you would use 150k as the basis.

  • Tara August 19, 2013, 7:51 am

    I agree that it’s a hassle to get a rental property, unless you happen to have it in an area where the weather is great year round and tourist season never wanes, which is not something I’ve found yet!

    I’m curious though, on what your thoughts would be on a person buying a house in a cheap area while they’re renting and living cheaply in a big city with a high paying job? The purpose of buying that house would be to eventually pay it off and retire in it mortgage free. I guess the way to do that would be to buy it solely as an investment property to rent out full-time while you’re still working in the city as a renter and then finally take advantage and live in it when you could retire?

    • Mr. Money Mustache August 19, 2013, 8:57 am

      Yes! It can be a great strategy to buy your retirement house in advance, in a cheap area, and rent it out for a profit while you continue to earn money in the city.

      • Chad August 19, 2013, 9:49 am

        Good plan if you want to retire in Memphis or Dallas. Not sure it is going to work in many other places though.

    • PawPrint August 22, 2013, 10:30 am

      That’s what we’re doing. The only drawback is finding a property manager because now we live in a different state. We’re not particularly happy with the group we signed up with, although we called all their references, read the online reviews and tried to make an informed decision.

  • Insourcelife August 19, 2013, 7:57 am

    It sounds like the main issue for Pirate_Wench is the potential for appreciation that he would miss if the value of the condo continues to increase. Personally, I would be looking more at the 100% chance that this house will drain my resources today than ?% chance for appreciation simply because I would hate paying all these expenses now. There is money to be made on the sale, he is not upside down so I would be listing it soon in time for the 2013 ski season.

  • Alfredo August 19, 2013, 8:06 am

    There are two pleasures you get from a (vacation) second house: the first is when you buy it and the second is… when you get rid of it.

  • No Waste August 19, 2013, 8:25 am

    You’re really hitting the luxury level of life when you’re thinking about a second home of any kind.

    I would have to really, really love a place to lock myself into visiting there ALL the time, though.

    I’d probably rather take the money and diversify my vacation time.

  • Kenneth August 19, 2013, 8:42 am

    We bought a vacation home last year. It’s a small home in the woods, 107 miles from our main home. Paid $85,000 for it (2,100 sq ft, 3 br 2 ba). We pretty much go up every weekend and really enjoy it. It’s probably going to be our retirement home in a couple of years, as we sell our main home and put the cash into investments.

    • Mr. Money Mustache August 19, 2013, 9:05 am

      Wow! I don’t envy a 214-mile-per-week commute ($5,500/year in transportation costs alone), plus the double property taxes, utilities, maintenance, and $5,000/year in foregone investment returns would pay for some pretty sweet rentals.

      .. but the eventual strategy is definitely sound. Downsizing from the expensive city is an ace-in-the-sleeve available to many people. I guess it depends on how long the double-house burden is maintained. A couple years is a fairly short time.

      • retirebyforty August 19, 2013, 9:49 am

        Exactly what I was thinking. That’s a long commute every week.
        Hopefully you can retire soon and don’t have to take that long drive every week.

    • cs August 19, 2013, 10:00 am

      we bought a cottage last year and I was so nervous that it was a bad idea. we weighed all the pros and cons, we decided to stay in our tiny house and buy a cottage. it has been the best thing for our family.

      we go up 2-3 w in the summer, a week over xmas, most of march break, all holidays, at least 3 weekends a month, all year round. we see our friends and family more than we did before. we get out of our neighbourhood, we have started white water paddling, fishing, etc things that we never would have done in the city.

      once our kids leave the nest, we very well might sell our city house and retire there.

      I am glad that someone else thinks a vacation home isn’t the worst idea ever. we have no plans to rent it out either, we lend it to friends/family (for a small donation) when we can’t go up.

      we tried camping, we tried a tent trailer, we tried a piece of vacant land to build a small cabin “one day” but it just didn’t work for us. but the cottage…it is wonderful….

    • Snow White August 19, 2013, 7:34 pm

      We did something similar a few years ago when we bought a house on the Gulf Coast in an area where my husband wanted to retire. It was a 3 hour drive from our “real” home and we went to it almost every weekend. It turns out that we (okay…mainly me) didn’t want to live in the area full time. It was a nice enough vacation area but not enough amenities for me to want to live there full time. We owned the house three years before we sold it and it was an expensive education. It ended up okay in that my husband ultimately did get to retire to an area that he likes better and I am happy because I can continue to work at a job I love and that wouldn’t have been possible in the beach town. So…bottom line, it might make sense to buy your vacation home early but only if you are sure that it is where you will really want to retire to!

  • Miguel from Spain August 19, 2013, 8:50 am

    First of all, English is not my mother tongue…
    Last Sunday, we went to visit my wife’s sister to a small village on the Spanish South coast, where she bought a flat some years ago. Another sister was thinking of buying a flat for holidays for only 100k euros, and i said it wasn’t a very good idea. Everybody was smiling to me as if I were stupid. Her husband insisted to believe that the price of houses never go down. When I said that the prices in Spain will not raise again in at least one decade, my wife told me to shut up to avoid a hot argument.

    In the car, coming back home, I made the maths to my wife: 100k of price + 10k of tax when buying + 90k in interests of the mortgage + 50k in expenses to maintain the flat for 40 years = 250k euros, and I am forgetting inflation. Those 250k divided by 40 years is more than 6000 euros a year to spend in luxury hotels on the Spanish coast. Fortunately, my wife agreed with me, but not in front of her sisters…

    Best regards!

    • Sean August 19, 2013, 2:49 pm

      Your english is just fine. I’m in a situation where I bought a vacation house with friends 10 years ago. My annual share of the mortgage and upkeep is about $18k a year. Situations have changed in that decade – married, kids, etc. We hardly use the house and I would love to get out of it. That $18k would finance several nice family vacations annually and I’d never have to make the drive to the house to fix something that has gone wrong. Oh, and while we rented it a bit over the years, most of the time it sits empty. Money down a hole.

  • M.M. August 19, 2013, 9:11 am

    MMM, I have never commented before, so, Hi! And thank you so much for this space. Your blog is helping to change my life. I’ve started saving at a much more aggressive rate since I started reading here, and your posts on frugality are helping me more thoroughly internalize the concepts of living a frugal, but enjoyable, lifestyle. (& yes, my initials really are “M.M.” :) For example, I now look at a $5 Starbucks coffee with fear and loathing rather than a sense that I’m indulging or treating myself. They’re not even that good, anyway.

    With regard to this post, I cannot imagine wanting to own a second [non-investment] home — to have to clean two homes, pay double utilities, pay double taxes and insurance, own a second set of appliances and furniture for one person or family, etc. It seems crazy, and it’s just… wasteful. Not very eco-friendly.

    That said, my soul dies a little whenever I read about US home prices on your blog — because here in Edmonton, Alberta, $170,000 generally gets you an ancient tear-down/lot value single family home in what is usually a depressed neighbourhood. You can get an okay-ish condo for that price, but I’m never going to be an apartment dweller. (& this comment is not intended as a complaint!)

    I really envy Americans their abundance of affordable real estate. I’ve been working on saving a down payment, but the continual and steady rise in real estate prices here keeps chipping away at the value of the money I have saved. I’m being smart and patient, aiming for 20% minimum (no way, CMHC!).

    I think this comment ran away with itself.

    Again, thanks!

    • Mr. Money Mustache August 19, 2013, 3:44 pm

      Rent, invest elsewhere, and be ready for the eventual crash!

      Or, get a job in the US, buy a house, then progress from TN work visa to H1-B, Green Card, then full (dual) citizenship!

      I agree – US houses are reasonably priced in most areas. Not overly cheap in my town, but not ridiculous like most of Canada.

      • Rick August 19, 2013, 11:25 pm

        I’m in the heart of the boom here in Canada. Saskatoon, Saskatchewan to be exact. House pieces in both Regina and here are insane. 2012 average price was $319,000 and that doesn’t get you a whole lot. We ended up buying a brand new build because it was cheaper than the used market! Put in another $30k to finish it (vs the $100k to hire it out) and your at used home prices if you can DIY.

        It’s very sad for new home buyers because they pretty much need two incomes to buy (or save the proper 20%). I’m talking two average people, not MMM readers. I just wish I could capitalize on my $600k house (we are debt free so that’s 100% equity). I’d be tempted to sell and rent if I didn’t have two small kids. Then again, rent is more expensive than most mortgages after 20% down if you can even find a place! Ther must be a correction on the way although it could be a long while given the steady and solid pace of mining and construction jobs. I just hope not too many people get hurt by it.

        I’ve thought about moving to the USA and cashing in on this house. The money isn’t worth moving away from our families or giving up the great job I have.

        Take advantage of those house prices in the States, you USA citizens!

  • The Warrior August 19, 2013, 9:27 am

    Good morning!

    For “pirate_wench”, I think stepping back and analyzing the opportunity that comes from selling is the big point.

    As MMM mentions, double the savings rate will lead to far more opportunities than the vacation home allows. Then it becomes a fairly easy question to ask ones self as to which opportunity (cont. to own vaca home versus other opp’s) would lead to a better life.

    Often, stepping back and asking the question, “Which decision will lead to the life I want sooner,” will help make the decision easier.

    The Warrior

  • Mr Military Money August 19, 2013, 9:41 am

    I think a second home is only viable if it will be used as your retirement home. If you don’t ever plan on using it as a primary home than you end up wasting money to keep it up to date and then time and stress because you now have even more exposure to the housing market without the benefits of an investment property.

  • retirebyforty August 19, 2013, 9:53 am

    The only way I would consider a second home is if I’d move there soon. It just cost too much to pay more tax, mortgage, utilities, and everything else.
    Yeah, it’s hard to sell because the price is going up. I guess it depends on how desperate you are. The mortgage rate is going up soon and that might screw up the market so maybe it’s time to sell now and take your profit.

  • Pretired Nick August 19, 2013, 10:05 am

    Given that she is gone for such long periods during the year, using her home as a vacation rental in Seattle can make a lot of sense. My friend here in Seattle has a home that he rents out on VRBO and it makes almost exactly the same as a long-term rental. He gets a lot of people from elsewhere in the country who come out to stay near family for longer periods, so it’s not necessarily a “vacation” market like somewhere tropical.
    That extra income could really accelerate the path to pretirement!

  • Sarah August 19, 2013, 10:22 am

    I have hesitated mentioning my RV for fear of what MMM and the rest of you would think, but after the RV mention above, I want to point out that I bought a used 1997 RV from Craigslist for $8,000 cash and I love it. We just got back from a beach vacation at Camp LeJeune in North Carolina. My other half is a retired Marine and the USMC has a private beach campground on the base that is only $12 a night. We have a second home anywhere we want to park, including walmarts and truck stops for free (which we did on our way down to the beach). We sleep in our own bed on our own sheets every night and have food in our own refrigerator that we can eat anytime without even stopping. Our ultimate plan is to hit the road full time when our youngest graduates from high school. 6 years and counting. I know it’s not for everyone, but it makes me feel supremely happy and very frugal!

    • Debt Blag August 19, 2013, 11:58 am

      I don’t know why; it seems like the ultimate in frugality when it comes to having a second home. Of course, there’s the big upfront cost, but I’m sure you’ve more than made up for it in terms of short haul trips. Congrats :)

    • Mrs. Blue Sky August 21, 2013, 11:02 pm

      I’m with you Sarah. A simple, used RV has been the ideal vacation home on wheels for my family. We like the variety of places we can explore and our dog can come too! Gas is the biggest expense, but we choose our destinations being mindful of that. Once we parked it at the hall at a family wedding reception. After a night of partying, all we had to do was tumble outside and fall into our beds. Pretty sweet!

  • Gerard August 19, 2013, 10:50 am

    I have two homes, one in the city where I work and one in the city where most of my family lives. Because I spend so much time in each place, the math on the second place (almost) makes sense — mortgage interest plus taxes plus condo fees (what y’all call HOA, I think) for the year cost about the same as I would pay for 61 highly-discounted hotel days plus non-kitchen food. And I do spend more than 61 days a year in it, and benefit from the convenience of having somewhere to keep my stuff between visits. And I plan to retire to it eventually.
    But if I didn’t have the place, I would probably find ways to lower my visiting costs, so maybe I’m just fooling myself…

  • CincyCat August 19, 2013, 10:52 am

    I can totally appreciate that Pirate_Wench is looking to sell, but I am wondering at the strategy of only pursuing long-term rentals. Are month-long rentals are the norm in Jackson Hole? Is there any market at all for weekly rentals? (I would imagine you could charge more on a weekly basis, rather than a monthly.) Is the property listed on popular vacation rental sites like VRBO?

  • andnowforsomethingdifferent August 19, 2013, 10:52 am

    I’ll try swimming upstream here and make the case *for* owning a reasonable vacation place. First would be to define “reasonable”
    1) A low-rate mortgage you can afford w/o stopping your retirement savings flow.
    2) A place you really enjoy that facilitates the things you love (skiing, biking, hosting family & friends, whatever)
    3) A place high on location, but low on showiness & “prestige”
    4) A place in a reasonable drive for weekend or overnight stays. For me, that cut off is about a 2-hour drive. Any further, and it becomes too much of a commitment for casual weekends.

    I completely understand the argument about renting various places vs. owning a place that never moves. However don’t underestimate the hassle of figuring out & researching rental places, securing reservations, packing all your stuff (clothes & toys), hitting the grocery store if you don’t want to eat out every meal, cleaning the place up when leaving to not lose your deposit or leave behind valuables, etc..
    If you have your own place, it’s grab a few things from the fridge, load the dog & kids in back, & just go. Yea, that means two sets of furniture, clothes, etc., but I can attest you can outfit your condo & closets from thrift stores amazingly cheaply if you have patience & an eye for deals. I’ve also retrofitted the heating system & beefed up insulation to keep the utilities in control, as well as working with the other owners in the HOA to keep costs under control.

    I’m blessed to live in MMM’s ‘hood, so we have a place 85 miles away from our regular home in the heart of the mountains we bought ten years back after years of searching various mountain towns. I still love our getaway place, minutes from skiing hiking & biking, as well as an easy walk to the nearby main street when we don’t feel like cooking. We don’t even rent it – the income from rental never struck us as worth the hassle of letting strangers live in “our” other home.

    I won’t pretend to sway anyone by running any numbers, it is an expense and a luxury that I am blessed to be able to afford. But it’s also a place I look forward to spending weeks on end in retirement, a jumping-off place for camping & ski trips, and an easy change of scenery when I get itchy from spending too much time in the same place. Like everyone else, sometimes you decide that some things are just worth the money.

    • Mr. Money Mustache August 19, 2013, 3:41 pm

      Sounds like a reasonable thought process, Different. The main reason I took the stance I did in this article is:
      1) Most people can’t actually afford their vacation homes (they may even have mortgages on them and/or the primary house!). Shit, I know people who drive loan-financed CARS between two houses with mortgages. Triple insanity! People need to actually GET some wealth, before acting like they have it!

      2) In a world of infinite resources, sure, we would buy whatever we want and drive around freely with the only constraint being how much money we have.

      In the real world we have, it makes sense to assign at least some weight to living lightly on the land – a single small house, minimal driving, etc. Sometimes the second house and the driving still wins out. But if you don’t even weigh this factor, all the choices will lean towards incredible levels of consumption, especially as you get richer.

      So I like to encourage people to find happiness in other ways than doubling up on the biggest things we consume in this country. I take it as a personal challenge to live better each year while consuming less stuff each year, and I’ve never been happier.

      • CarrieP December 17, 2014, 2:13 pm


        I read this post soon after you wrote it and my husband and I put our CO mountain home on the market. It’s taken ages(!) to get it under contract, but it looks like it’s finally going to sell. We love Rocky Mountain National Park and our cabin, but we have a mortgage on it and realized how much of a drain it is. Your article gave me the courage to act on a feeling I’d had about our place for a while.

        After the sale, which, if everything goes as expected, will be in early January 2015, we will be completely debt free. We will lose a lot of money in the sale (and we spent thousands and thousands on taxes, upkeep, plumbing issues, utilities), but keeping it would only compound our stupidity. Thanks for the face punch!!!

    • Livvy August 19, 2013, 4:20 pm

      Hi -I totally agree with your line of thinking. We have a home very near the beach that is only 10 minutes away from our primary paid off house. We have a 15 year, 3.25% mortgage, and we have 13.5 years to go. All the furniture is 2nd hand, and we recently completed a 3K kitchen update. From a pure financial standpoint, the house is a mistake. However, spending time with family in the house brings us much joy. There is something about the smell and sound of the ocean which is can’t be duplicated. And because it’s only 10 minutes away, we use it a ton, the kid’s friends come for sleepovers and the kids can stay in sports the entire year. We have always dreamed of having a house by the ocean, and now we can afford it. Will we retire here? I don’t know. But I do know we feel alive and surrounded by beauty when we are here.

      • Farmstache August 20, 2013, 8:25 pm

        Livvy, what I don’t understand is: if it’s only 10 minutes from your main house, why not move there already? Not that I advocate for the longer commute, but I’m sure the savings on ceasing to maintain an extra home could offset the commute costs. Plus, you’re happy there when surrounded by beauty. I wouldn’t think twice. :)

        • Livvy August 22, 2013, 1:39 am

          Great question. The beach house is in a different, and less favorable, school system than our primary residence. Secondly, it is cold and raw in the winter compared to our primary residence. In the case of financial Armageddon, we could indeed move there. But right now, I see the taxes and upkeep for the primary residence as a substitute for private school. When the kids graduate and are out of the house (and I sincerely pray that the boomerang effect of kids returning to the nest is not as common as it is now….) we will most likely make the decision to sell or rent out one of the houses full time. Does that make better sense? PS commute costs are about $5 each way, they’re not highway miles.

          • Farmstache August 22, 2013, 7:25 am

            Ah, I understand a bit more now. We don’t have the same school system as you guys do per neighborhood here, so this hasn’t even crossed my mind. I’m always an advocate for not having a home to retire to, but actually live in the home you want to retire to (as in: make that life happen), that’s why I asked. :)

    • Beca August 20, 2013, 12:07 am


      A big DITTO and AMEN. I’ve typed 15 different responses to this thread from our point of view, decided that my responses were too specific and too personal, and discarded them.

      We bought our second home, the home to which we hope to retire, in 2011. In retrospect I believe that we bought it at the very bottom of our local market. It is a brand new house; the builder got stuck with it during the down turn. It is energy efficient and constructed from durable, low maintenance materials.

      We agree totally on location over style statements. Our chosen location is perfect for us, but even our family members don’t completely “get it.” It’s too remote for them. The remote location does concern us in terms of resale potential, should we ever need to sell the house. (In the backs of our minds, we are always “selling the house,” just in case… this applies to every piece of real estate we’ve ever owned.)

      Our “out” in this case would probably be to sell the house in town first, live at our second home (which is where we want to end up anyway) and eat the commute for as long as we could stand it before my husband retires. Alternately, we could move to the second house and rent the house in town. Or, we *could* stay in town and rent the second house- we’d still have access to the neighborhood and the amenities we love so much (location, location, location) but not the house.

      That option just might drive us bat poop crazy. I’m not saying that we wouldn’t do it if we had to do it, but I am saying that if we ever *had* to do it, it just might drive us bat poop crazy. We love the place that much.

      We furnished the second house almost exclusively from Craigslist, thrift stores, and other second hand sources. When I couldn’t find what we needed second hand, I shopped price points at discount outlets with a vengeance. It’s amazing how little it cost us to furnish that house from stone cold empty to fully furnished and comfortable.

      And it looks like I clipped the rooms from pages in magazines. This is another place where the down turn in the market was a good deal for us- people in our area were unloading huge houses with their huge mortgages and their itinerate designer furniture as fast as they could unload them. This resulted in the most fun game we’ve played in a while- we’d invite friends and neighbors to point to any furnishing, any furnishing at all in the second house and guess what we paid for it. We loved watching jaws drop when we rattled off the price.

      We are about the same distance as you in between residences. I have to dispute MMM about the cost of commuting between the two houses. I checked our financial software and year to date, we’ve spent $2192.90 on gasoline. This figure includes (HERE’S WHERE I’M GOING TO MAKE MR. MONEY MUSTACHE’S HEAD EXPLODE!) (wait for it…) towing our RV over 2700 miles this year, sight seeing while on vacation using the tow vehicle, as well as commuting between our two houses and including commuting around town while at either residence. We do own an economy car that gets between 30-40 mpg and we use that most of the time, unless we are towing the camper and/or we need to use the tow vehicle just for cargo capacity.

      A word about RVs: an RV can be a great investment if you have a clear idea of how you want to use it, you do actually use it, and you run the numbers. We are surrounded by some of the very best state parks in the country, from mountains to the ocean, in our state and in neighboring states, as well as gorgeous national parks. There is no way I’d want to stay in a hotel that charges the same nightly rates as our pristine state and national parks. As another person on this thread noted, we sleep in our own bed, on our own sheets (bedbugs, NOT) (have you looked into the cost involved in eradicating bedbugs once you bring them home?) and we eat our own food. We can also take our dog with us, thus saving on boarding fees.

      If there’s anything left of MMM’s head, I’m going to send it into orbit NOW. We bought our RV brand new, off of the dealership floor. NO- we’ll go one better- WE SPECIAL ORDERED OUR RV. :) :)

      (Excuse me while I clean up the splatter…)

      OK. :)

      My husband and I started in tent camping and moved to pop ups. I took my last cold water pull shower on Ocracoke Island in October 2007; by 2008 we had a tiny pop up with a small but HOT WATER BATHROOM. Due to real, legitimate logistical reasons (won’t go into that here) we wanted a hard sided camper. We loved our pop up but it wasn’t going to work for us over the long term.

      We looked and looked and looked for a smaller used trailer in our area. What we found were smaller trailers that had been ridden hard and put away wet, or very large RVs that people were trying to unload secondary to the run up in gas prices. There were slim pickings on used RVs in our target size. Also, the smaller the RV, the more important the floor plan becomes, and the more selective one must be about the specific amenities one tries to shoe horn into that limited space.

      The RV industry suffered as much as everyone else in our recent economic unpleasantness. In 2009, the RV manufacturers were offering unreal incentives. We took advantage of those incentives and got a great deal on just the right RV for us: not too big, not too fancy, with the floor plan we want, amenities we desire and not one thing more.

      We paid cash for a brand new, smaller RV that fits our needs exactly rather than paying the same amount or more to buy somebody else’s too large RV.

      One must be cautious about with buying used RVs- it’s very easy to buy someone else’s problem in terms of neglected maintenance, deferred maintenance, benign ignorance, or just simply wear and tear. An RV isn’t exactly like a house- we don’t hitch our house to a tow vehicle and drag it down the road at highway speeds for a couple thousand miles a year.

      Would I buy a used RV? Sure- but very, very carefully. There are experienced RV owners out there who have more confidence in their ability to spot potential issues with a used RV than I do. If we’d found a smaller used RV with the right floor plan and the right amenities from a private seller, I think I would have paid our trusted RV dealership a small fee to go over it for us before I handed over the cash and took the title.

      Buying a new RV gave us a manufacturer’s warranty, which we were able to double in length for a very nominal, no brainer fee that was also hugely discounted as an incentive. This gave me big peace of mind during our initial shake down cruises, which is a very apt name for the first few trips with any RV. It is possible to purchase warranty coverage in the secondary market on a used RV that approximates the manufacturer’s warranty, but unlike the manufacturer’s warranty, you are going to pay for that coverage.

      We did buy the tow vehicle used, and we were lucky enough to find a great low mileage tow vehicle with a factory installed tow package at a very reasonable price.

      Buying a smaller RV means that we can tow it with an SUV. We don’t have to use a super duty/diesel tow vehicle.

      Yes, these are definitely “luxuries” but we purchased them for pennies on the dollar. The RV isn’t appreciating in value, obviously, but it is holding its own nicely, both in terms of resale value (if it ever comes to that) and in terms of its usefulness to us. We will end up money ahead over time both in terms of the discounted purchase price, and in terms of the discounted price we pay for accommodations and the food we bring with us.

      The second house was so discounted (the builder just wanted it off of his books already) that we had built in equity when we purchased it.

      Between the trailer and the second house, we don’t pay much at all for our recreational activities, vacation, etc. And the second home is increasing in value and building equity while we enjoy it.

      We are carrying this load on a very normal middle class income with a very normal middle class lifestyle. We aren’t “house poor” in part because we bought the second house at the bottom of the market, and in part because we have trimmed our other expenses. We aren’t “RV poor” because ditto, we bought at a depressed time in the market, and we paid cash. We aren’t suffering under the burden of running two households plus maintaining and using an RV because we live a thrifty lifestyle anyway. We simply shift our thrift to whichever place we are using at the moment.

      I would encourage people to think outside the box, and to consider all possibilities. By all means, run the numbers- and know thyself. Owning and maintaining two houses *and* the RV is a LOT of work, I won’t deny that, and of course owning anything is an additional expense even after it is paid off (property taxes, real estate taxes, insurance, maintenance, etc.) I think these are two areas where it might be advisable to rent before you buy- see if you will really enjoy it as much as you think you will. For us, it’s heaven, hard work and all- but it’s not for everybody.

  • cwebb August 19, 2013, 10:54 am

    Not sure I agree with everyone here. Let’s do the math.

    Total expenses after 9 years – roughly $50K according to his math.

    Net cash profit after taxes – $80K. (Interesting he said he will have to pay taxes. This must mean he has been claiming depreciation, but that wasn’t in his summary. That would make a big difference.)

    Free Rent – $27K. (He lived there 1 to 4 months/year. Let’s split the difference and call it 2.5 months/year on average. That equals $3K/year by his rent estimate.)

    $107K – $50K = $57K. That’s not a horrible return over 9 years. Especially when those 9 years straddle the worst housing bust in almost a century. Throw in the depreciation and it goes from an average return to a great one.

    • mary w August 20, 2013, 1:21 pm

      cwebb – Since it’s not his principal residence he will owe capital gains on the profit. Also because it was a bit of a hybrid (second home and rental) he should have been pro-rating his costs between personal use and rental so he may have some depreciation recapture as well as capital gains.

  • MonicaOnMoney August 19, 2013, 11:15 am

    Mr. Money Mustache- Thanks for the great advice! I’ve often wondered about buying another condo to rent out and have since decided to hold off until I’m able to 1) payoff my own condo completely and 2) pay for the entire rental in cash. Until then, I won’t try because of the many reasons you talk about. Thanks for the constant inspiration, I love your blog and always link back to it for inspiration :)

  • Kenoryn August 19, 2013, 11:29 am

    My partner and I are currently living in two houses – definitely our biggest savings liability. I bought my house a few years ago, before we were dating, and he rents a house out in the country, about 20 minutes from my place. The obvious solution would be for him to move in with me, but he is a furniture maker with a full woodworking shop (did not envision this possibility when buying the house). I have a small place and nowhere to put a woodworking shop. We also grow most of our food at his place. Selling my place is not a great option either because I bought it as a fixer-upper and it is still mid-renovations – I’m doing the renos myself, to save money and learn the skills needed to build our own house in future, but it means it goes slowly as I’m working around a full-time job. My place is also the one that is walking distance to where we both work, while he is 20m away. We both have cats to take care of so we split our time between both houses. Sigh.

  • Ian August 19, 2013, 11:31 am

    My wife doesn’t like this saying/rule but I think it’s fun, “If it flies, floats or fornicates; It’s cheaper to rent.” I generally apply it to second homes as well.

  • Johnny Aloha August 19, 2013, 11:35 am

    There are some places where owning a vacation home and renting it is a great strategy!

    A friend bought a house in Kauai, and they rent it short term and use it a couple times per year for personal vacation (they live on Oahu). After all management, maintenance, vacancy, cleaning, etc, they realize a 15-18% cash return each year (not counting mortgage paydown). So it’s important to run the numbers before buying.

  • Mike August 19, 2013, 11:44 am

    Have a cabin in Big Bear. All paid with two partners. Would like to sell but my partners will not offer market value for my share, plus my wife doesn’t want to sell for sentimental reasons. We average 1 weekend per year use.

    Looking at the money put into the cabin, yes of couse we also have cable and used to have a phone line, it has turned into one big clusterfuck.

    Now it’s a matter of using the cabin more or just eating the loss. It’s all paid off, it’s probably best to eat the loss.

    • Marcia August 19, 2013, 12:16 pm

      I’d love to rent a cabin in big bear for vacation.

  • Newtimes August 19, 2013, 11:47 am

    We made a vacation home in out own home where we live! We do have to buy everything x2 but I think it will be a good investment.
    We bought our house 7 years ago. It originally had a butcher shop at the ground floor but when we bought it it had gone to trash. So we fixed up that space, making it a separate appartment with its own front door, kitchen, bathroom and small garden. We fixed it up ourself without taking a loan on it so it took some time but we are almost finished now!
    Our family lives on the other two levels of the house and we have a small terras. We dont have to travel to maintain it, we only have to go down the stairs.
    We dont want to rent the appartment for a full year because we heard horrible stories about renters and we want to keep the control on who lives there. After all its the home we live in.
    We live in a nice small historic city in Europe with lots of tourists. We can pay off the mortgage of the house with this vacation home rent. And our house is worth more now because of it. I think we found the only possible way to make a vacation home profitable.
    What do you think?

  • Debt Blag August 19, 2013, 11:50 am

    I can see a lot of the things you’re mentioning. I guess if forced, it makes the most sense to move without selling an old house, and then just rent that out.

    What I don’t like about buying a second house just to rent it is that you’re much more likely to get unfavorable terms.

  • Marcia August 19, 2013, 12:28 pm

    This is a very interesting case study. I admit to the lure of the vacation home.

    When my husband was young and single, he got suckered into a vacation “club”. Pay only a few thousand up front, and a week’s vacation in almost any place is only $400! Great idea, right, but he never vacationed. We used it for our honeymoon, that’s it. Well, that was a valuable lesson.

    Same with timeshares – I have a few friends with these. And Hilton Grand Vacation club keeps calling us. No, I don’t mind staying at an awesome Hilton resort for vacay every 5 years or so. But I don’t want to be part of your club.

    My in-laws have a 2nd home/ cabin on a lake (upstate NY). It is 25 miles from their house (they are divorced now and so split the two homes). Except the cabin is only allowed to be occupied from April until December. It was pretty small and rustic for most of my hubby’s childhood, and wasn’t very much money either. These cabins sell for $50 to $250k these days, but were about $15k way back when. They went up to the lake every weekend in the summer (where it was a lot cooler), and sometimes weekdays (MIL was a SAHM). It seems like a good investment to them. They have also put in a LOT of work so it’s more liveable – most of the work done by my BIL.

    Anyway, it makes me want to do the same sometimes. But my reality is:
    1. There is no such thing as a cheap vacation rental in Coastal So Cal.
    2. I don’t have that much vacation time to make one worthwhile.
    3. Traveling with a toddler sucks.
    4. Financially it still wouldn’t make any sense.
    5. I live in freaking Santa Barbara, what do I want to get away from?

    Our big vacations we tend to just rent condos or cabins. So others who are suckered into the vacation rental – we rent from them. We’ve done this in Yosemite and in Hawaii. It’s better than a hotel and pretty cost effective.

    I admit to being tempted by RV’s. Our neighbors have a camping van ($100k + probably). However, they used to use it ALL THE TIME. Many trips per year, from 2 week ones to long weekends. We just don’t travel that much. I’ve costed out renting an RV, and it doesn’t make sense either. By the time you add in gas and the campground cost, you can stay in a condo or a decent hotel. Maybe for a 2 week long trip it would be worthwhile? But personally, we’ve been getting along with our Thule rack on our Matrix. We alternate a few nights camping with a night or two in a hotel.

    Next year or so it’s going to be staycations. Hubby wants to go to Hawaii again. For that cost, I want a trip I can enjoy. Flying with two kids, one a toddler? No thanks.

  • Derek August 19, 2013, 12:29 pm

    Thankfully, I’ve had the temptation of the vacation house come and go. It sounds like it truly is an example of it depends where you buy and just simple cash flow.

    As you mentioned through your analysis – the numbers don’t work. There is almost no credible scenario to even break even.

    I think some vacation/rental homes can work out on paper to make money over time – but that certainly isn’t the case here. i agree he should sell the house ASAP.

    • Woodshark August 20, 2013, 1:52 pm

      We have a 2nd vacation/weekend home and for us it TOTALLY is worth it. How is that possible? Easy.

      1. Make sure it is close enough to drive too whenever you want to use it. Ours is a lake house and is a short 90 minutes away.

      2. Buy it right. We searched for over a year to find the lot we wanted, and then bargained like crazy to get the price we wanted and then paid cash for it.

      3. Make it affordable. This was way before finding MMM but we designed the home ourselves, then hired a contractor to grade the land and build the shell. We then spend a couple of years (off and on) finishing out the interior as we had had time and cash to do so. Landscaping too.

      Decorate frugally. All our appliances are from Craigslist. From washer/dryer to gas stoves and fridges we saved a ton. Most of the furniture is slightly used from Habitat for Humanity resale stores or new from IKEA.

      Boat? Yes! Used.
      Dock? Yes! DIY. Built in a friend’s driveway. Finished in the water and towed over.

      All done with zero borrowed. Sure it took about five years but we enjoyed the process and now we have a 100% paid for 2nd home that we (and our friends) enjoy almost every weekend for less the 50% of what it would have cost normally.

      My wife has nicknamed it “my sanity” because when we are there, troubles just seem to go away. We plan on retiring there in about three years so not only was it a good investment of our time and resources, it is paying us in “fun” dividends now and for the foreseeable future.

      So yes, it can work…it you do it right.

  • WageSlave August 19, 2013, 12:54 pm

    Just a reminder to Pirate_Wench or anyone else contemplating selling a rental: depreciation recapture. Clearly, there will be capital gains tax on the $80k profit of selling the unit. But if income taxes have been lowered via writing off depreciation as an expense, then the cost basis of the property is lowered. I forget the exact details, but IIRC there’s one schedule for how much taxes you pay on the difference between the original purchase price and the new (lower/depreciated) cost basis, and another schedule for the more familiar capital gains.

    MMM readers move savvy than me probably already know this, but it was news to me fairly recently. Fortunately I read about it before learning “the hard way”.

  • M August 19, 2013, 1:04 pm

    I live year-round in “cottage country” (Muskoka) in Ontario. Every weekend during the summer I see drivers screaming up the highway to their cottages to consume, consume the experience and then scream back to Toronto to pay for it all (and perhaps brag that they have a second home?). I grit my teeth because the local economy depends on these visitors but I also happily wave bye-bye at the end of the season. It just seems so nonsensical as a lifestyle.
    I have a sensible rental property in a town nearby that generates about 6.5% ROI but we maintain all of it ourselves. I wish I could get higher numbers but the provincial government controls rental increases annually. Sigh.

    • paddedhat August 21, 2013, 1:00 pm

      Fascinating topic. I live in a vacation home community that caters to the Philly and NYC second home market. I also build them for a living. That said, you couldn’t give me one. Maybe it’s the frugal side of me, or what I learned from sites like this, but I also know a lot of it is a case of being too much of an insider. Funny how these “products” fit into our consumer driven madness.

      I have seen far too many people end up here in a flakey little haze. The deer are strolling the woods. The birds are chirping. They had a lovely ride out of the city on a sunny Saturday afternoon, NOT Friday evening when every Zombie is trying to get out, and it takes five hours to go 120 miles. They have rented in the neighborhood several times, and now they just know that it’s the right time. What they ignore is the obvious. They are expensive. Your realtor may claim that offsetting the cost by renting is easy-peasy, but your realtor lies. You now enter the joyless role of being the property manager, the groundkeeper, the book keeper, the housekeeper, and so on. You really want to kick back next weekend, but you got an HOA warning about the 18″ tall grass, the gutters need cleaning, and you have to interview a few local bubbas to find a grass cutting service and a plowing contractor. Yea, it’s bliss.

      Oddly enough, when you really pull the curtain back, you find that the turn over on these things tends to be shockingly fast, as in 4-5 years when the economy is hot. As for profitable rentals in this area……..good luck. If you dropped 1/2 mil. for a lakefront, and it has five bedrooms, and resort amenities, maybe. If you dropped 150-300K for the same ole’ 3/2 chalet that looks like every second house in the hood, not so much. In that case you gross 12-18K a year, give 25% off the top to the agency, and try to pay the bills, fix the damage and make a profit with the balance. Right.

    • Elaine March 15, 2015, 5:38 pm

      M, my husband and I live in Haliburton County, just a little to the east of you. Same story over here. So many people come for the weekends, often just in late spring, summer, and early fall (because most of them can’t get to their places through the snow, or their places aren’t winterized) and spend their time here doing more household chores. The drive alone can be brutal from the city, never mind having to work hard while they’re here. On top of that they pay high property taxes if they’re on a lake and huge prices for the cottage itself. It’s not something I could ever see myself doing even if I didn’t already live here. Local businesses need them to survive, but it’s always nice to get our village back after Thanksgiving.

  • Frank August 19, 2013, 1:16 pm

    HOA fees.. UGH!.. I’d rather pluck my eyes out than deal with the HOA clowns telling me what I can and can’t do in MY house and then paying these clowns for the privilage! If I had an HOA it would become my life’s work to find ways to annoy these people!

  • Jasen August 19, 2013, 2:44 pm

    Our neighbors had a vacation cottage. They found they spent all their time and money doing maintenance on it rather than enjoying it. So they sold it and bought… timeshares!

    But they didn’t buy timeshares the stupid way (paying retail from the developer), but the smart way (paying pennies or less on the dollar on eBay). At one point, I think they had over a dozen units. Some they rented, some they used, some they traded.

    We were intrigued and so bought one about 1/2 hour from where we live for ~$50. By having one so close, we get use of the grounds & pools any time we want. We had visions of doing lots of trading, but life has not worked out that way. Fortunately, our resort has a decent rental program, so we can deposit our weeks for rent and get ~$1000 back, for a $700/yr. maintenance fee. Any year we actually want to use the week, we just eat the maintenance & trading fees. It takes a couple hours of attention each year to pay the fee and deposit the week at the right time, but otherwise it’s totally hands-off.

    All that to say, if you have the bug for a vacation home, buying a timeshare unit for cheap may be a workable solution.

    • tallgirl1204 August 19, 2013, 4:10 pm

      I think that looking at an RV as a “second home” is a useful exercise, and I read this article with that in mind. We did an anti-Mustachian thing this year and bought a pickup truck and a slide-in camper (did the deed about two weeks before I started reading MMM). Bought it for cash (yay!) but bought both new (I know, but oh well).

      Having just started MMM (and being fairly well set-up financially, having no debt but a mortgage, being otherwise relatively close to retirement etc.) I decided to spend the rest of the year just observing our behavior– making myself an anthropologist of my family’ s consumption life.

      At first, I thought “Oh my goodness, we made a terrible purchase and should bail out!” But then I decided to let things go for a year and just observe. Did we use the camper? What were the costs and benefits, compared to our old way of behaving. Is this an optimal use of our time, money and choices?

      Several months later, the signs still point to this being a luxury item– but one that is well-loved and heavily used. Over the summer season, the camper was slept in 49 nights. We paid for no hotel rooms, and on about 10 nights, we camped “at large” in national forests with no fees and no neighbors. We paid for very few restaurant meals, because the camper serves up delicious dinners with choice ingredients, with no more trouble than cooking at home. We lost little food to rotting because the refrigerator preserves produce and dairy much more effectively than a cooler does (with no leaky ice to manage). Morning and evening routines were startingly less labor-intensive than our previous tent camping trips had been. Sleeping in bear country became much sounder, with that limited aluminum skin now imposed between us and nature.

      On the down side, campgrounds were expensive, from $20-$45 a night. We paid extra for a ferry for being “oversize.” The gas mileage was abysmal.

      All-in-all, I would say it is a net positive, and we will keep the beast and continue to observe whether this “second home” is an optimal luxury for us. I am well aware that it has cost me an extra year in the workforce, plus probably two more years for its maintenance in perpetuity.

  • FinanceGeek August 19, 2013, 3:52 pm

    Does it make sense to sell the house in Seattle and live in Jackson Hole full time during the months you are not at sea? It seems to me you basically spend most of your land-based time in Jackson Hole anyway. You might add a couple of additional plane tickets per year, but you would eliminate a mortgage. I may be missing something, but your job doesn’t seem to require you to live in Seattle, just launch from there.

  • Tony@WeOnlyDoThisOnce August 19, 2013, 4:15 pm

    This is something I battle with all the time. We have a second home, but it is right near the summer camp that I own and run. We will eventually retire here., and we spend 3 months there a year. Financially does it work out? As you list above, probably not so much. But, my story is a little different than the normal “let’s buy a second home for the heck of it”. Thoughts?

  • vp August 19, 2013, 4:52 pm

    My parents have owned a cottage next to ski lifts for over 25 years. We ran the numbers for fun recently and they would have been ahead financially had they rented the same condo every year for the season! Never mind the hassle, maintenance and monotony! Growing up, we enjoyed the condo the first 4-5 years but got tired of going to the same place every weekend. I know, first world problem.

    Now that I’m all grown up, I would never even think of owning a vacation house even if money was no object. I take advantage of all those people who love to spend money on expensive resort houses and rent them for cheap to “help” them pay their crazy 2nd mortgage.. No hassle + destination/house variety and you can vary the size of the house with the mission. Airbnb is your friend and I think it will only get better with more baby boomer paid off vacation houses coming online.

    We’ve rented with friends multi million dollar houses for $500/night!

    Want to vacation in Venice Beach, CA? POW! $100/night.

    Feeling whiney? Napa valley wineries? Italian villa for $300/night.

    At these prices, why would people burden themselves?

    • Leslie August 20, 2013, 9:31 am

      We also ran the numbers on a vacation home and concluded that we could stay at the 4 Seasons hotel for less than the taxes, mortgage, and maintenance costs of a second home. I also envisioned myself cleaning the place during my vacation so that image helped me decide against it too. We now consider the national parks as our second home for vacations. Thankfully there are no cleaning duties, only pitching a tent, and cooking outdoors which we enjoy.

  • Ann August 19, 2013, 8:50 pm

    I plead totally guilty to trying to *get* my parents to buy a vacation home. HOWEVER, the circumstances are very different:
    –they live on a 13 acre homestead 700 miles from me. It is paid off, as is the 1000 of farm land they rent out. They make waaay more money renting the land than they ever did farming it.
    –They are getting older. They are past retirement age, and I (and my mom) really want them to move closer to family so they have time to make friends and find their “community” before they have to move off the farm for health reasons. This is the baby step to getting my dad to move–he’s comfortable with “snow birding” but not ready to completely move.
    –The “vacation home” would be a two bedroom “retirement” home (small lot) in either the community I live in or within a 2 hr driving radius. Housing prices for this type of house are ridiculously low around here–like you can get something nice for $80K. They could easily purchase with cash. And if they purchase in our community, we would take on the lawn and home maintenance when they are back up on the farm.
    –My parents could come and visit more often without having to stay in my house. This is a double win–they need space, and so do we.

    So in this case the second house is more about long term issue…and quality of life :)

  • Medebe August 19, 2013, 9:30 pm

    I own a vacation rental in Mazatlan where I have family that I visit from 2 to 3 times a year. It’s not a money-maker, per se, but I do save money on hotels whenever I visit and I have offset some of the (very moderate) expense of ownership through renting on AirBnB and FlipKey. Because I know I’m going to be in Mazatlan several times a year, I enjoy having the house because it is in a “normal” Mazatlan neighborhood as opposed to the Golden Zone where most American and Canadian ex-pats live (no offense to my ex-pat friends). I’ve come to know my neighbors and have one of the best locations in the city with easy access to the beach, shopping, restaurants, etc. I, like many others who have commented, abhor the notion of dead assets (especially real estate, which is more or less what I do for a living), and to that end have tried to rent the property more over the last few years. I could turn this into a seasonal rental fairly easily (versus the weekly rentals I have experienced in the past), but I prefer to reserve several weeks during the year for my use, so the trade off in lack of rental income for using it whenever I want is worth it. All that said, I agree that if you haven’t hit your financial goals of sufficient lifetime wealth, a vacation or second home is probably not in your best financial interest. It’s worked out for me because it does not figure prominently in my overall wealth-building strategy. Great post.

  • stellamarina August 20, 2013, 1:31 am

    I think I want to be a Merchant Marine and make $70,000 for half a years work!

  • Vijay August 20, 2013, 1:52 am

    I have read through many of your posts and agree on most, and disagree on a few things. First to the agreement part, the concept of frugality and living within one’s means is something I completely agree with. Being an Indian, and Asians in general, practice this widely and hence our Savings rates are so high. If you probably take the savings rates by communities in the US, Indians and Chinese would top the list probably.

    However, I disagree with this notion that retiring at age 30 is good. What you are preaching is a “Self” centered concept where the I takes precedence over We. Imagine a society where every one retires at 30 or 40, do you seriously think such a society could even survive economically? Already, US has lost all its manufacturing to Asia, and what is left are a few high end jobs like building planes or Warships! Imagine, even that disappearing!!! For a society to remain competitive economically it needs skilled people to be productive in the right way till they can. Otherwise the 100,000$ that you mention to do an IT job, will all but vanish from the US, and will all be in Bangalore India at 20,000$ !!! Please note that US standard of living is slowly going downhill and rest of the world is catching up. Money, development and Power is flowing east precisely because there is no competitiveness in the US (both monetarily and otherwise including right quantities of skilled people).

    • Mr. Money Mustache August 20, 2013, 7:07 am

      I appreciate the comment Vijay,

      If you read enough around here, you’ll see that I’m not really trying to get everyone to quit working at 30. Just to quit consuming so much that they are FORCED to work in order to even put food on the table. After stepping back from the financial ledge, we can re-evaluate what is important to us and make better choices. People will still keep busy.. It’s 6:45AM and I am already out of bed, writing this to you, even though I “retired” 8 years ago.


      This can even end up making a country like the US richer, not poorer, as we import less disposable goods and investment capital, and possibly slide more people up the educational and skill scale where we create higher levels of design and technology.

      As for losing the manufacturing base – if you’ve read much about it over the last five years, you might have noticed the effect slowing and some outsourcing stopping completely, as Eastern wages have risen and 1 billion people climbed (slightly) out of poverty. This is exactly what trade is good for.

      It’s not the US vs. the rest of the world here, it is humans for humans.

      • Roses August 20, 2013, 7:15 pm

        Also, Vijay, what exactly is wrong with the US standard of living going down? No more McMansions with 3-car garages, enormous SUVs to drive everywhere, designer everything, etc, etc? I’m not saying we’d be better off with India’s standard of living (I’m from a 3rd world country too. I know how devastating that poverty is). But what’s wrong with things evening out a little?

        As for the I vs We mentality, I think you’ll find most early retirees do plenty for society. And I’m not just talking about volunteering and making charitable donations. Many people end up ‘working’ on truly inspiring projects that benefit more people than their clock-punching jobs ever did. Check out the book, “Leaving Microsoft to Change the World”. How about this very blog we’re commenting on?

    • Tim August 20, 2013, 11:57 am

      “Already, US has lost all its manufacturing to Asia, and what is left are a few high end jobs like building planes or Warships!”

      This is wildly inaccurate. See http://www.unido.org/fileadmin/user_media/Publications/Research_and_statistics/Branch_publications/Research_and_Policy/Files/Reports/World_Manufacturing_Production_Reports/STA_Report_on_Quarterly_production_2013Q1.pdf Also, I’m not sure why you’re comparing one country to a continent.

    • Novacek August 21, 2013, 9:16 am

      The US never lost all it’s manufacturing to Asia. What it lost was manufacturing jobs, but actual manufacturing never stopped, and the US manufactures more now than it ever did (even before the “on-shoring” that MMM notes below). What changed is that we 1) started manufacturing more with automation (robots) and 2) manufactured different things, that were less labor intensive (computer chips instead of textiles/garments).

    • Mike August 21, 2013, 11:04 am

      Manufacturing tends to go where the totality of cost is lower, labor being only one small part of a large, complex whole. Toss in shipping, communication challenges, IP leakage, supply chain responsiveness, corporate citizenship concerns, etc. and the situation gets much more complex. With more and more labor being replaced with automation at the low end, I would rather see the US face the challenge of bringing more people from low end skills to high end skills than face the challenge of making people compete with robots that never sleep, eat, have kids, get sick, ask for raises or unionize.

  • djbluemonster August 20, 2013, 6:41 am

    As an avid new reader of the Mustache I was happy to see this topic arrive in my inbox. I own one of these ‘black holes’ however, my average ROI per year is about 75% of the costs. This includes everything; mortgage, HOA, taxes, utilities. With 75% covered for the past 6 years (with a plan to get to that elusive 100%+), does the Mustache army think my scenario is worth continuing to fund?
    I’m trying to find the math that proves/disproves my personal scenario. In my back of the napkin calculations, I believe this is a rare situation and I should keep the vacation condo. Thoughts?

    • Mr. Money Mustache August 20, 2013, 7:31 am

      I guess it depends – how much do you spend going to and from the place? (And if driving, don’t use “gasoline” as the way of calculating driving cost as many beginners do – use at least 50 cents/mile). Is the vacation commuting displacing any other activities that might allow you to find an equal or greater form of happiness right in your own area?

      Your plan to get to 100% is good in general – as it is polishing your business and financial independence skills, which will come in handy later in the “freedom from mandatory work” department.

      • Belov August 20, 2013, 4:56 pm

        Quick question about mileage costs. You usually quote the $0.50 a mile cost, but that includes both depreciation and insurance, making that cost only relevant if not making that trip allows you to sell the vehicle, e.g. changing a daily commute from 25 miles to 5 miles. For my recreational trips, I use $0.30 a mile, since I’m going to own the car no matter, and the depreciation and insurance are sunk costs. Whaddya think?

        • Mr. Money Mustache August 20, 2013, 6:23 pm

          This is a good question to review for those still in Mustachian Boot Camp :-)

          Really, your car depreciates per mile, not per year. Sure, if you buy a NEW car, it will depreciate very quickly even if you just park it. But the less you drive, the older and cheaper a car you can own, which slows the annual depreciation.

          If you only make one or two trips per month, you could easily get around in a $2000 1994 Accord wagon, for example, and it would still last you a decade or more with minimal maintenance. So your depreciation would be only $200/year.

          Meanwhile, driving extremists consider a 2005 car “old”, and rack up 15,000 miles a year on their cars. In this case, you are using up almost 10% of a brand-new car’s lifespan in just one year, with depreciation $2000 – $10,000 depending on the car.

          Similarly, you can get cheaper insurance when you don’t use a car for commuting, when you have lower annual mileage, etc.

          • Beca August 20, 2013, 6:49 pm

            I wondered about this. I didn’t want to challenge your cost figure per mile because I knew you had other factors included besides gas mileage: upkeep, maintenance, etc.

            I made a mental note of it, and decided that since we maintain our cars regularly, DIY when possible and when it saves us money (The Husband is a expert at finding oil change coupons that beat his cost for DIY in the garage, the man is on a mission, but he’ll change the oil in both cars on a dime if it’s cheaper) and we don’t use either car for work commutes (husband rides public transit) then your figure didn’t apply to us completely and that’s all I needed to know.

            I didn’t figure depreciation into it.

            I’m pretty sure that we are well beyond our steep depreciation curve on all of our vehicles (RV included.) We will keep these vehicles UNTIL THEY DIE A WELL-DESERVED DEATH so it doesn’t much matter for us.

            Our additional costs per mile are more about tires, oil changes, etc. :) :) But your point is well taken!

            • Lucas August 21, 2013, 3:58 am

              The real take away here is to do your own calculation for your own car :-) Most older cars will come in less then $0.50. It is pretty hard to get below $0.25 though due to gas, insurance, and maintenance alone. We are averaging $0.28 on our one car at the moment (mainly because insurance and depreciation are minimal at this point).

  • Jeff August 20, 2013, 7:06 am


    Please do an article on the difference between capital appreciation and cashflow! Many people seem obsessed with capital appreciation with no consideration of cashflow.

  • MrBeard August 20, 2013, 9:51 am

    Just want to comment on one thing:

    The house was $200k in 2004, and now it is $280k. MMM says that 80k is a good profit, but it actually is not. There is no profit other than protecting some money from inflation.

    $200k house in 2004 adjusted to inflation (3%) worth $260k now. Add all the property taxes, hoa fees, maintenance costs, and of course, don’t forget the 8-10% selling cost of a property, you are way under water.

    It is a big illusion people have that everyone gets richer with realestate. In realty, most people don’t. Housing/shelter is a necessity. Turning that into luxury expense by buying a too much house is what most people do. It is a costly mistake…

  • Mark August 20, 2013, 10:13 am

    We had the thought of buying a second vacation home once we started to make great money. We took another look at the idea and saw the problems with this. First thing you always had to go to the same place time and time again. The cost of the whole dream just seemed wrong. I also do handyman work so I figured the whole vacation I would be fixing something instead of relaxing.
    Then we realized you could rent a place (anywhere) off of VRBO for a little amount of money. We have done vacations in California, Outerbanks, Hawaii, Virginia and Maine. Always great cabins or houses with quiet views of the natural surroundings. We plan vacations with other families and when we settle up on the money they cannot believe how little it cost for lodging, food and drinks when you go this route.

  • WalletEngineers August 20, 2013, 10:20 am

    My parents recently made the mistake of purchasing a second home on a lake in MN. With their primary home being in DT St. Paul and the fact that they spend every winter (3 months) in Florida at a rental their average vacancy is actually 33%. They are quickly realizing the 2 homes in MN are not necessary and will probably be selling one of them in the next year. In my opinion it would make more sense for the people who have the money for a second “vacation” home to instead use that extra money to go on actual vacations where ever they want!

  • Giovanni August 20, 2013, 10:33 am

    RE: Waiting one more year (for property appreciation). It is a very normal thing not to want to pass up the potential for future appreciation but the short name for that is greed. While the root instincts of greed were key to our survival out on the savanna not so many tens of thousands of years ago, they don’t serve us well in a financialized world. It is also what makes us pack rats and spawned the whole self-storage industry which MMM has written about.

    Combine that with our natural optimism which was also very important to our survival back in the day, and we’re inclined to learn towards rosy futures and we often find ourselves in the same situation you are in now, hanging on too long hoping to sell at the top. One of the reasons economists are so often wrong is that they project the immediate past out into the future in a straight line. Things have been going up for a while and so it looks like they’ll keep going up. Don’t be an economist unless you have too.

    There are plenty of signs that things might get more ‘interesting’ between here and a year from now. The Fed started talking about future conditions under which they may begin to ‘taper’ and the bellwether 10-year Treasury doubles in three months. This has caused mortgage rates to rise and new loan applications to fall. On top of that Walmart and other large retailers have just reported lower than expected sales (70% of our economy is people buying crap they don’t need with money they don’t have). Those two facts alone might be enough to change the tint of our glasses. And pray to God Jackson doesn’t go through what Ketchum is battling right now, just to name one potential black swan.

    As Niels Bohr quoted: “Prediction is very difficult, especially about the future.” But there are some things that we do know and one is that the Jackson condo costs about $20k a year so we can figure out how much more the condo would have to sell for to break even on holding on another year. To do that you would have to net 20k after commissions, closing costs and taxes so a little math:

    Commissions and closing costs +/-8% so 20,000 / .92 = 21,739 to break even before tax. Depending on how much the property has been depreciated your tax on the gain will run somewhere between 15-25% so for round numbers let say 20%- 21,739 / .8 = 27,174. The property has to appreciate over $27k just to break even and that’s almost 10% appreciation in one year based on a projected value today of $280k. And of course that’s if congress doesn’t raise taxes between now and then.

    So by hanging on for one more year you will be betting that the condo market stays good in Jackson, your condo appreciates 10% in a year and congress doesn’t raise taxes all just to break even. If you factor in your time and effort and a risk premium the place will have to appreciate even more just to make it worth your while. How confident are you that it will?

    I’m not picking on the OP but as MMM says a little math can really help in figuring things out. Full disclosure: I run these kinds of analyses every day for people in the work I love to do.

  • Beca August 20, 2013, 7:07 pm

    You know what? I’m reading along with all of these comments and I’m noting a large divide between those who love their “vacation”/retirement homes and those who regret the purchase, or know someone who regrets the purchase, or can’t see a good reason for the purchase.

    For us, “the numbers” work because our second home is a critical part of life the way we want to live it. Other followers of MMM will give up all sorts of things to live in a smaller footprint, with a smaller traditional work commitment. That portion of control over their lives is the motivating factor for their lifestyles. The second property is a quality of life component that makes us happy to get up in the morning and whistle while we work- it makes the work we do, both my husband’s traditional 9-5 (and beyond) and my non-traditional work (frugality, thrift, squeezing every bit of value out of a dollar, or any resource) worth it.

    I’d love it if we could flip life upside down and live at the second home full time, perhaps giving up the house in town completely, visiting town for occasional day trips/provision runs/entertainment, using the travel trailer to visit other venues when we want- but that’s not practical right now.

    Trust me, if the burden was making us miserable, we’d lose it in a minute. I love both of our properties and our little trailer but I don’t love any of them more than I love my husband, or myself, or our quality of life.

    We are thrifty by nature so the frugal things we do that make these “luxuries” possible are no great sacrifice. It’s more like our money and resources are going into the things that really do make our lives awesome.

    Also, we’re older, we have long ties to the geographic area in which the second property is located, it has recreational, aesthetic, quality of life and sentimental value for us.

    We cast a large, large net when we were thinking of a potential retirement location. This place was always in the front of our minds, but we made ourselves investigate and consider a LOT of other options- because we do have diverse interest, and other places hold appeal as well. We take our little travel trailer all over the place, and everywhere we went, we evaluated that area as a potential (active, engaged, recreational) retirement location. In the end, after considering so. many. options., we came back to a place that both of us consider home. For us, it’s not a “sacrifice” to commit to this one place- it’s a dream that we’ve nurtured for a lifetime. So there’s that.

    If it’s not making you deliriously happy to fund any real estate obligation, by all means, get rid of it- it’s not the right dream for you!

    (Also, for us, our diminutive travel trailer makes many other venues available to us for a discounted cost.)

    • Ratracespector August 20, 2013, 7:26 pm

      because, well-said. And that’s what I love about the MMM community. Above all, we are not slaves to any specific strategy or dogma, but using each other to bounce off ideas and experience …usually with brutal honesty…and not lulled to sleep by consumerism. Thank you to everyone who shows up every day and participates!

  • Dr Frugal August 20, 2013, 7:52 pm

    Thanks for a great case study. This is something my wife and I have been debating for the last couple of years. We live near Toronto and it is very much a cottage going mentality. To add to that many of our friends have bought property in the United States since the crash so not only do they have one but two vacation properties.
    We have decided not to buy a vacation property because what we have noticed over the last few years is that there is no way our friends and family have the time to use their properties. Most of the time they are more than happy to have us use them just to check on things and do some minor maintenance. Or they want to invite people to their cottages as it is much more fun with lots of people. Over the last few years we stayed in cottages at many of the lakes north of Toronto that are Valued at 1 million +, houses in Florida, Cayman Islands, St Lucia, Paris for free.
    So I would urge people on this blog to be creative. Simplify your life, have no debt and have lots of time to spend with friends/family and make use of their unused vacation properties! So far it is working for us…

  • Brian Romanchuk August 20, 2013, 8:40 pm

    When I think of having a cabin, I think of the path followed by friends and family in the 1970s – they started with uncleared lots on lakes that were just opened up. The numbers would be fairly good, but you had to use an outhouse for a long time, and it took a lot of work. Hey, if you are retired, you may have the time to work on it.

    The problem now is that you would have to be in a pretty isolated place to be near a lake that has just been opened up for new cottages. Buying an existing cottage now looks ridiculous – the Canadian house price bubble has infected cottage prices as well.

    On a somewhat related note, does anyone have experience with running a bed & breakfast? I can’t see the returns being attractive in most Canadian cities currently, but it does look like one possible way to generate cash in retirement.

    • Elaine March 15, 2015, 5:58 pm

      My husband and I had a B&B for a few years. We live in cottage country so knew it would be a seasonal thing. The business varies a lot from location to location, so you really have to do your research. You also have to think a lot about the lifestyle you’re getting into, as it really does restrict your freedom. If a guest is late in arriving (sometimes several hours without letting you know), you can’t just say “tough” and go out for dinner anyway. And you always have to stay connected. If you don’t you miss getting bookings. Anyone thinking about doing this really needs to think it through carefully and talk to other owners. If you decide to do it, be sure to make sure that you set it up to run in a way that you can deal with.

  • Anatidae August 20, 2013, 9:21 pm

    Thanks for these two awesome recent posts, Mr. Money Mustache! I’ve been reading your blog for quite a while but have been too shy to post. The MMM blog has helped me to get over my fear of our personal finances, to understand how to make rational decisions about money, and to respect my husband’s views on these matters, which are similar to yours. Not to mention, you’ve accomplished these things with HUMOR! So I just wanted to express my deep gratitude.

    This particular article resonated with me because my husband and I used to dream about having a vacation home, and over the last few years, we realized this was not a reasonable goal for us. Instead, we plan to buy a used boat within the next few years, transition over 6 months or so to living on it full-time, and ultimately use it as our only residence. We love sailing as a means of exercise (here in SF it is a great workout!), spending time together on the weekend, traveling, and entertaining friends & family. Other appealing factors are being able to travel on the weekend using only the wind & our rippling muscles, rather than undergoing the drudgery/expense of a car ride or commercial flight; being forced to jettison Useless Stuff that won’t fit in the confines of a boat; the satisfaction of maintaining it mostly ourselves; and of course, all that fresh air and those sea breezes.

    For the type of boats we’ve looked into, including slip fees & some maintenance that we can’t do ourselves, we estimate that it would about break even with our rental apartment and would be cheaper than buying another house (we currently own a house that we rent out). Let’s hope we can make it happen!

    And thanks again for always giving me plenty to think about, Mr. MM!

  • Lucas August 21, 2013, 4:04 am

    I agree that there is a huge difference between a rental property and a “second home” that sometimes gets rented. There are different forms of real estate investing though and not all need positive cash flow (they just end up being much riskier). In our area (DC) it is again impossible to get positive cash flow with the current prices. People haven’t exited the real estate market though, they have just changed their tactics. Renovating and reselling is the lower risk way to handle this market, but I know people who are “buying for appreciation”. So they buy something they can only get say 75% of expenses covered, but rely on the past years 15% price inflation to end out ahead. Of course this is back to what caused the crash in the first place and rather risky, so I am staying out of that game.

  • Cline August 21, 2013, 5:30 am

    Well, I’ve always said the same thing. I only wanted a beach place because others had one, I could rent 3 weeks for what annual fixed costs were. Well, I made a deal that I think is “cost effective” . I went in with two friends and we bought a place on the ocean that had sold for 306k and we got it for 120k after a foreclosure and some mold issues (large issue was taken care of but still has a moldy smell, I found the source and it was a no cost fix) This scared everyone away, we got a mold report that was WAY overstated saying floors had to come up, etc, etc. Now my 1/3 of fixed costs is less than my families annual beach vacation (us and two grown kids and family) . Believe it or not I think this will be a good investment and allows me to dip my toe in retirement lifestyle and see if I like it.

  • Merlin August 21, 2013, 8:50 am

    I think my father, years ago, said it best: “a man with two wives loses his soul, a man with two houses loses his mind”

    • Derek August 23, 2013, 8:09 am

      Haha, that’s a great one Merlin.

  • trying to be frugal August 21, 2013, 9:45 am

    We have a second home…well really a dock, play area and a deck with a plastic shed on it. And it really works for us.

    1. We bought land that everyone said was unbuildable (guess they were all complainy pants) and afraid of some hard work.
    2. We knew that it was a 25 year construction project when we started. We are now 10 years into it.
    3. We LIKE working and building. it is not a chore – but an amazing opportunity to teach our kids how to – build, live with less, make a plan and stick to it, be frugal (we have a small budget each year for building). Live without the glass, marble, tile, cars, fancy this and fancy that of their lives.
    4. Family time – no computers, no iternet, no fancy technology….cards, board games and the like
    5. Priority setting – can’t do it all at once
    6. Dreaming – great value in getting the family to dream together – and compromise to stay in budget
    7. Living with nature – not the city jungle

    And making money.

    We bought our property for less than 100k (oceanfront raw land) and it is now worth over 400K. We have put in 50K of capital hard dollars and a lot of fun sweat capital over the last 10 years.

    it is like anything in life… it can be a chore… or it can be a joy.. It is your outlook that makes it worth while or a tragedy.

    Our “neighbours” have McCabins… big homes.. they rarely use their places. We have plastic tents and we are there all the time. They complain about cleaning their 4000 foot homes.. we are too busy swimming, hiking, building and dreaming to complain.

    So we have spent 150K over ten years. We could probably have made 150K in investments… so maybe total costs 300k. But, we have more than that in assessed value. We have WAY MORE THAN THAT IN MEMORIES.

    I believe if you want a beautiful show home as a vacation property you are nuts. It is just something else to take care of. if you want an opportunity for your family to grow, dream, learn, and play together – GREAT.

    As in everything you write MMM – It is about your values.

    • Jay Bee September 19, 2013, 1:30 am

      I have to agree with this in principle and practice.

      Likewise, it’s possible to amortize the property by renting it out in the high season, and then enjoying it in the off-season and judiciously in the high season yourselves.

      Several of my friends have vacation homes purchased at various times of their lives. Most of them are currently mortgage free. Most of them use the homes for 4 weeks or so in the high season, renting out the rest of the time, creating a passive income. Most of them also have renters there in the off-season (a single renter from Oct to April), also bringing in income.

      My own plan with property is simple. We started with an affordable condo. We sold it to move internationally. Now we are returning, and looking at a live-income property that we can pay the whole mortgage on ourselves, so that the income from the tenant can basically “double” our payment (we can afford a traditional 15 yr mortgage and have 20% down; the home costs 1.75x DH’s income), paying off the mortgage in 7.5 years.

      Then, save the income for several years and set up a vacation home where we can rent it in the high season, and enjoy it in the off seasons (we — and our friends — tend to vacation in the off seasons together. costs a lot less, and you enjoy a lot of natural beauty and quiet without the holiday crowds!). Again, being able to pay off the mortgage quickly because we want it well within our means to support the mortgage if we don’t get a full rental.

      Then, we might consider a single family dwelling, but right now, we are not really looking into it. We’d rather make the money work — do more passive income streams through property or investments of different sorts. Exciting stuff, if you ask me. :)

  • Mike August 21, 2013, 9:59 am

    Much like boat ownership, second-home ownership (and aircraft ownership) is something best left to friends whom you are unable to talk out of the transaction. Do your best to keep them out of trouble, but once they are committed be grateful and enjoy the ride. And the house-sitting opportunities.

    Or the super-rich. If someone can plunk down cash for the boat, plane, second and third houses and all the support staff and not bat an eyelash, more power to them.

    • Carl August 23, 2013, 8:49 am

      This topic is so market-specific and investors in second-homes need to be aware of the trade-offs. Markets like Chicago, while they can demand high rents, can flip in a short number of years. We went from a buyer’s and owner’s market to a renter’s and seller’s market very quickly. But it isn’t just about what market you’re in if you’re renting your property out — you have to understand the supply, mentality, and shift in the renters you’re dealing with. It isn’t just about value appreciation and mortgage-rates. What second-home owners often ignore is the subjectivity of renter longevity and fickleness. Because of the increasing property takes and HOA assessments, owners are passing them through to the renters and it’s making renters less considerate and honest with their landlords. Be careful how you treat your renters and ensure that you have a amicable relationship with them. You don’t want to have a vacant mortgage-funded property for 6-12 months (or more).

      • Sean August 23, 2013, 11:04 am

        Amen to that. We have a two-unit rental located in a great area of our city. The basement unit pretty much turns over every year, so I try to maximize my rents on it. The upper (and bigger) unit has had the same tenants for four plus years. I keep their rent steady and have made some considerable upgrades to their unit. It is far better for us to keep them there and happy (and they always pay on time) than to try to just upping the rents on them. In ten years, the building will be paid off and paying us enough income to cover our living expenses.


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