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.

  • 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.

  • My Life August 21, 2013, 10:33 am

    After years of camping, RV’ing, doing the Caribbean (if an island is in the caribbean, I’ve been there), Europe thing (England, France, Italy, Switzerland) and seeing almost every American state from New York to California, stick a fork in me. I’m done. With traveling, that is.
    I’m tired of airports, car rentals, motels, hotels, B&B’s, camp grounds and RV sites that suck!

    I wanted a real bed to call my very own. I like the beach AND I like the mountains. I reached a point in my life that if having two places (homes) that can provide both, I’ll be happy for the rest of my life. And I am.

    I bought two homes, paid cash for both. One is in the Catskill Mountains. One is on the beach in Newport RI. Both are small (900 to 1100 sq ft) and both are economical to run and maintain ($31 electric bill monthly) and have little amenities, except a comfy bed and all the basics (kitchen, bath etc). My annual costs for the beach house are less than what a family would pay for a one-two week rental ($4000) vacation.

    When it gets too cold up in the mountains in February, I rent a little condo in Long Boat Key Florida from a relative. Inexpensive! I can drive my own car to any of these places. I never have to rent a car or stay at a crumby hotel ever again. In the end, when I tally up all my annual costs for all 3 places, it equals what one family would pay for one home plus One annual vacation. Ugh.

    No thanks. I love my life. I figured all of this out while still young. A boss once asked me how I wanted my retirement to be. I thought long and hard before I answered him. I said I wanted to summer at a beach, spring and fall in the mountains and winter somewhere sunny and warm. Once I said my dream out loud, I made it a reality.

    If you want a second home, you’ll figure it out how to do frugally and within your budget. Don’t be swayed. If that is what you truly want, go for it!

  • Scott from Detroit August 21, 2013, 7:53 pm

    In Michigan the big thing for folks is to own a house “up north” (generally anywhere a couple hours or more north of Detroit). I watch as my aunt’s and uncles work into their 50’s and 60’s so they can afford their 2nd homes, boats, and RVs.

    The great thing is that two of my relatives are kind enough to invite us over once a year for a big family weekend between to cottages that are close to each other. We have a lot of fun, but I’ve always wondered how they justify the cost of a house that sits empty most of the year. Also, winter is brutal up north, especially on the west side of the state.

    I love going up north, and I’m more than happy to pay a hundred bucks to stay in a quaint motel, or if I really want to flex my money mustache, I pay $20 bucks for a campsite.

    The benefit to my strategy is that I can visit many different places in Michigan and elsewhere, instead of going back to the same place, riding the same trails, and kayaking the same river.

    Not owning a vacation home means you can go out and experience new things.

  • Farmstache August 22, 2013, 10:04 am

    Now I want to add my two cents on the whole second home experience. I now see the financial downsides to owning a second home and am pretty much convinced it isn’t worth it, unless you treat it like a rental property investment.

    I am a child of a family that has always owned second homes. My dad’s parents have a beach house 4 hours away, my mother’s parents have a country house 1,5 hours away, my parents have a beach/country house in a remote location 5 hours by car + 2 hours by boat away (no electricity!), my uncle has another one nearby. At least 5 of my school friends had family farms or second homes we used to travel to. As a child, it was great getting to visit all of my friend’s families, and while it probably wasn’t cost effective to the families (except maybe one friend whose grandma lived in the farm), I’m sure I would never have been able to travel with most of them (whose parent would actually pay for 15 children’s stay at a stranger’s house somewhere?). Not that they wouldn’t have the money saved from owning and maintaining the house, it’s just that people simply don’t do it.

    Now, on the side of the 5 second houses I consider to be almost my own: yes, it’s great to know your neighborhood, see seasons changing, know trees by name, meet people on the streets, know the guy at the bakery, a kind of living experience we don’t have in the huge metropolis of São Paulo. It’s awesome to choose where to plant things that will bear fruit in a few years, and be there to see the results. I love that I got to help choosing where to add a room, where to build a new cabin, when to get chickens, when to sell the horse. I really appreciate all the sacrifices my family did so we could have all those experiences, so much so that now I’m planning on living like that always (I hated that this had to be only on weekends and holidays).

    On the other hand, nowadays I’m still a horrible travel planner, I suffer through the whole process, and more than once my boyfriend and I gave up going somewhere new and instead just packed clothes, the dog and went to the family country house. Actually, since we are still broke, per MMMs concept, it’s great to have a free-of-charge (for us), simple to setup getaway. And it’s not like I know the whole region… there’s lots of exploring yet to do, and it’s always a very pleasant trip.

    I think on conclusion:
    – Financial problem most times (you could be investing in your early retirement)
    – Lots of headaches with management
    – With the same money you could travel the world even with a 5 people family (and if you rent houses you can still bring your dog)
    – You could learn to travel light if you never got used to having all your stuff available
    – Monotony

    – Long-term experience with a second location for kids
    – Getting to know an area really well (you can do this with rental, though)
    – No-brainer trip whenever you feel like it (would you like a catheter and bedpan with that?)
    – If you get it cheap and pay near nothing on maintenance, it could double as your retirement home (not sure if it’s a sound investment though)
    – Cheap cost trips for all your friends and relatives!

  • Giddings Plaza FI August 22, 2013, 11:17 am

    Second homes are definitely a money hole. But when I travel, my friends and I take advantage of them by renting condos or houses in the places we visit. We usually use vrbo.com, although recently I’ve started using airbnb also. Other people’s money pits translate into great places to stay when traveling, and at a lower price than hotels.

  • chris August 22, 2013, 12:35 pm

    In 2010 DH took a job a mile from my job (both 37 miles from our house).
    We moved into a rental SFH less than a mile from both jobs and our SFH. Later it was vacant and a source of stress despite being paid for. It cured me wanting a vacation house!

    I continue to have some interest in owning a carefully selected rentals but have not had the right opportunities.

  • Mark August 22, 2013, 1:37 pm

    Great article and comments! If you own a vacation home, you will have less time and money to explore other places. My family just finished a vacation in Big Sur driving our Prius. We hiked every day and stayed a few nights in Deetjen’s Big Sur Inn and a few nights in a rented cabin in the Redwoods. Deetjen’s was the luxury portion of the trip. It has no TV, no wifi, no cell reception. Half the rooms do not have their own bathroom. The rooms are basically shacks nailed together in the 1930’s and ’40s with redwood that you could not buy today. The buildings are well and creatively maintained and repaired with recycled materials and hardware. Example: the windows are recycled sashes that are set in wood tracks to slide open. The restaurant serves creative and extremely high quality local food and wine. They have a library you can borrow books from and mail back if you have not finished reading by check-out time. Although it was not cheap, it was a highly compressed lesson in Mustachianism.

    We bought food at a grocery store and cooked our own meals in the rented cabin. Although much more expensively furnished, with stone tiled shower, polished granite counters, and fancy plaster walls, the cabin was not any more comfortable than the more primitive Deetjen’s. I noticed that the other renters were slowly trashing the place with grease, dirt, and wear and tear. There was a mold problem was developing somewhere unseen. I was glad not to have to deal with those problems on my vacation!

  • Sara August 23, 2013, 2:27 am

    Hi MMM
    I was very interested when I saw your article since this is a subject I often discuss with myself. I live together with my so and at the moment we live in a nice apartment. As I see the future we would want to either buy a house or keep living in our cheep apartment and the get a vacation house. I find that houses are really expensive but that a vacation house is rather cheap. Wouldn’t it make sense then to stay in the cheap apartment and buy a not to expensive vacation house? We would use the vacation home for holidays and for weekends to get away from the city (where we work).
    I am really looking forward to your insight!

    Some background: we’re around 30, live in Scandinavia. We don’t own a car and would buy a vacation house where we can take the train.

  • James August 23, 2013, 12:55 pm

    Hi MMM, just saw your site promoted on one of my other favorites – theconservativedividendinvestor.com, ie Tim McAleenan’s site. I’ve been following his dividend growth ideas for a bit and believe that will dove tail nicely with your fan base (it does for me).
    Keep up the good work. You are making a difference.

  • Barb August 25, 2013, 1:59 pm

    Regarding townhomes/condos as rental properties: In my area, Mpls.,MN, I am waiting on offers I made on 2 townhomes to use as rentals. Yes there are HOA fees of $200 per month. BUT, the price points are far below what single family homes go for, the HOA covers the roof, driveways and siding as well as water and garbage. Not to mention all outside maintenance. So when I analyzed this, I decided the financial risk as a landlord is less with a TH. I am not handy and would have to hire someone for maintenance. One roof re-do would wipe out 1-2 years of cash flow on the property. One driveway would do the same. Also, the rents will be somewhat lower thereby increasing the pool of renters and enabling me to be choosier about tenants. What’s missing in this analysis?

    • Mr. Money Mustache August 25, 2013, 5:37 pm

      What’s missing in the analysis? All the numbers! (Prices, property taxes, interest rates, closing costs, rental income, estimated maintenance and vacancy costs, etc.) … but if those work out even with HOA fees, you are doing great.

  • Glen-stache August 26, 2013, 10:40 am

    I just spent the weekend at my second home. I went into the process understanding the economics of renting vs buying. So, I took a tack that split the difference. I looked for quite a while until I found a lot with utilities already installed and bought at pretty close to the bottom of the market (2010 in that area). I then built a 200 sqft cabin that met my needs, but would be economical to maintain (utilities are $9/mo year round). By building it myself I have built enough equity that I could sell at a modest profit and I gained a ton of skills by building absolutely everything in the cabin.

    That said, there is an opportunity cost and those resources could have earned a higher return elsewhere. As others have pointed out earlier in this thread, there is a balance between frugality and how we want to lead our lives. This was an example of how I split that difference (YMMV).

  • Alison August 26, 2013, 11:47 am

    What are MMM principles when it comes to the size of your home in general? Should your primary residence be as small, and energy efficient, as possible? I suspect many of us live in houses that are much larger than we need. Besides the upfront costs of a larger home, much money is wasted on heating/cooling and maintaining a large house, not to mention the extra time it takes to clean 3 bathrooms instead of 1, etc… Similar to owning a small car vs. a large SUV. Second homes are as wasteful as owning a second car. Do real mustachians forgo a large fancy home before financial independence?

  • Tracy August 26, 2013, 3:25 pm

    I just found your blog 2 days ago, and honestly I am motoring through all the posts sucking it all in. Up until 2 minutes ago I didn’t think this was actually possible for me. I mean, we’re solidly middle class with a couple of kids, 1 newer car and an older minivan that my hubby drives which he is dying to trade in for a Toyota Tacoma (ka-ching!). We just also did what seems to be the exact opposite of what we should have. We just moved, to a more expensive community, granted it was for a job for me, but I was already gainfully employed as a contractor in the other city, but the glory days showed signs of ending on that front. We had a great house, with land, that my husband fixed up over countless hours making it into something beautiful. We bought a house, with less property, for more money, about 15km out of town, so yes bike riding is an option, but I don’t even own a bike so the idea is daunting to say the least. We also still own our other house, we’ll call it our “vacation house”, which we are currently finishing renos on, cause they weren’t finished when we decided to move. The house is on the market, which is dead, so now we’re considering renting, which my husband is loath to do, for an amount which will hopefully cover everything. Aside from that mess, I don’t feel like we’re huge consumers, but we don’t have much in savings, so it’s obviously going somewhere. Looking at the big picture I was stumped and unbelieving that I could turn this around to build a nest egg in 10 to 15 years that would allow my husband to retire early from a job he hates (he’ll be 56 then). But you know what…and I know this won’t be news to you….we actually could. I looked at my budget, it had all sorts of yummy stuff like, me miscellaneous, husband miscellaneous, clothing allowance for kids, another huge miscellaneous pot again, with a bit thrown in for investments. I don’t know what all this miscellaneous was for, but it’s a lot. I massaged it using your MMM technique, and voila, if I was diligent and made a respectable 5% return I could save just shy of $800,000 and have my $250,000 mortgage paid off AND have a rental if I wanted all in 14 years. It seems so crazy, but pretty exciting. Thanks for convincing me, now if I could just convince my husband that he really doesn’t need that fancy new truck to drive to work in!

  • Laurie August 28, 2013, 12:22 pm

    Instead of a vacation home, we were thinking of buying a small, cheap lot of land, and then erecting a yurt on it. There are some really nice ones! We could either leave it up all year and rent it out (who wouldn’t want to stay in a cool yurt?) or even take it down when it’s not in use. Either way, it’s much cheaper.

  • RobDiesel August 28, 2013, 12:44 pm

    With a large enough backyard, having a garage with a granny apartment on top would be excellent. That way you always have room for guests, live right there for maintenance, can keep it rented out if you rarely have guests stay there and can turn it off easily if it’s empty.

    Having a 2nd home sounds more like a status symbol than anything else, when I could easily just VRBO a large house for a family gathering or whatnot.

  • chand December 4, 2013, 12:14 pm

    Yes, I almost got pulled into buying a second “home”. The logistics would have been insane and the property terribly underutilized. Thankfully I came to my senses when I did the math. Moreover, liquid assets are liberating.

  • Karen January 19, 2014, 8:04 pm

    I fantasize about a second home in a beautiful part of our state. Thanks for covering this topic. I would love to find one that is a real investment, but it is good to realize that most of these can’t cover expenses. Maybe we’ll keep the vacation rentals in mind for special trips and save for a full time home somewhere beautiful in the future.

  • Justin January 6, 2016, 6:04 am

    My cottage in 5 hours from my primary. I inherited in and there is no debt on the cottage. But I’m torn between holding onto it or selling. I’m hardly sold on allowing strangers to tent it weekly but I could get 2k per week. Utilities are like $350/m. Taxes 6k per yr. Upkeep costs and trips to open and close it. If rented then some costs increase and 25% goes to management. Also, the cottage market there says its worth $350k. My primary is just $240k. Cottage is nicer than my own home. I make $110k/yr so decent but with 3 kids and stay at home wife, I could just sell and buy larger nicer primary without much of a mortgage. Obly thing holding me back is fact that my dad built the home. He was the general contractor and had all my kids in mind when he did it. We love the place and the area. My wife said she doesn’t want to retire there but we could certainly go 2 wks per yr. Dad died of cancer too young and so I should have a 2nd home at this age but I do, and I like it, but I know I could make life easier with the money now while sacrificing dad’s dream that we hold the home for generations to come. Do I sell? Tough to get back in after its gone. Only thing I learned from the article and comments is that I should sell and improve my primary, but…damn. My primary isn’t bad, just could be bigger. I know I could invest that money too. I think renting it weekly would hardly come out with net profit but would cover costs of ownership.

    • Mr. Money Mustache January 7, 2016, 9:11 am


      Your thoughts are swirling and conflicting, which happens to all of us when we are trying to justify keeping something that we really should sell. But the bottom line is you have a VERY busy life already with a job and kids, that cottage is DAMNED far away from where you live and stupendously expensive to hold onto. $6,000 property taxes per year? Holy shit!!!

      You could rent a palace for 2 weeks a year, anywhere in the world, for the opportunity cost (roughly $30,000/year) of what you are paying to hold onto that black hole right now. And still have enough left over to retire 20 years earlier.

      Holy shit my man, sell it and sell it now! It will be an amazing improvement for life!

      • KC January 7, 2016, 11:23 am

        Just throwing out sabbaticalhomes.com — we found a great low-key tenant who only stays in our house a few nights per week during the academic year, leaving it for us to use during the summer. We don’t charge him a lot, and he covers our taxes, insurance, and maintenance and leaves a nice little cushion for improvements. It’s dumb luck that we connected with the ideal tenant for our situation, but if you’re not ready to give up because of your sentimental attachment to the cottage, it might be worth a look.

      • timemoveson January 7, 2016, 12:42 pm

        Well said MMM and fully agree. Unless you – use the 2nd place very frequently (e.g., at least 26x a year), own it outright, it is truly affordable and appropriate against your level of wealth and income, and it really provides a high level of family, physical and psychic benefit – you don’t need to own it. Let someone else own it for you.

        I have such a place and it is an absolute keeper and brings great joy to me and the family. I had a 3rd place however, and it didn’t meet the criteria and as painful as it was to acknowledge and action it, it was gone ASAP.

    • Rich Schmidt January 28, 2016, 2:42 pm

      I’m going to disagree with MMM… Like you said, once it’s gone, it’s gone. There’s no getting it back. We’ll be in a similar situation whenever my parents die (hopefully a long time from now), except that ours is only 90 minutes from our house. We run up there on weekends several times a year. My sister and her family go there for a month every summer.

      As far as it is from your primary residence, I’d find a local agency to handle all the rental and management (open, close, clean, etc) and rent it out most of the time, except those few weeks when you’ll want to use it. Try it for a year. If it’s a pain, sell it. If it’s a great experience, keep doing it. Consider it an experiment, maybe set some benchmarks to help you make your decision, so that it’s not all based on sentiment.

      This cottage is an asset that could be making you money. Could you sell it and invest that money in index funds or something else? Sure. But why, when that money is already invested in an asset that can make you money? Put those dollars to work by renting it out. There’s certainly no reason to sell it and then dump more money into your primary residence, that you’re already happy with.

  • Justin January 8, 2016, 5:06 am

    Yes, I’ve come to a decision that makes sense. I’m going to sell it and put that money to use on a home in our ideal neighborhood near friends and our kids school. Improve the primary which is where we are 93% of the year. Up north will have it memories in that home and I’ll just rent off a friend up on the same lake if we really want to go there, otherwise we just go elsewhere. Family has a Florida condo too that we can enjoy. And who knows, maybe the next owner will rent it out to me for one week a yr.

  • Beth Ross October 16, 2016, 6:44 pm

    I scanned many of these responses, but do agree with what I see – DO NOT PURCHASE A SECOND HOME UNLESS YOU HAVE MONEY TO BURN. I was caught up in the idea that “owning” a property in a vacation area, would be a dream come true. Frankly, once you own it, all the fun disappears. It becomes a chore and something to stress you out. I lost about $175,000 on my rental property with a panoramic view of the Pacific Ocean in Morro Bay (I finally sold in 2015). This was after owning it for 10 years. Of course I bought in 2006 and the market tanked in 2008. I chalk it up to a life long learning experience. I am now totally gun shy of buying anything. Rent, rent, rent – it gives you flexibility, convenience, and ends up being waaaay cheaper in the long run. I hope my experience helps someone else. Especially, in today’s market – don’t buy, as everything is escalated in the present market.


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