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No Vacation

Dennis Friedman  |  July 30, 2020

I SOLD MY CONDO last month and the first thing I wanted to do was celebrate. It was such a relief to get rid of it, because owning a second home requires spending precious time maintaining it. At age 69, I can think of better ways to spend my time than looking after a vacation home.

At first, I was reluctant to put the condo up for sale. I had lived there for more than three decades. It’s walking distance to the beach, and there are plenty of good restaurants and bars in the area. Also, in the neighborhood, I have many friends who are like family to me. I thought that, if I hung onto the condo, it might make a nice vacation home that we could visit during the year. The condo is also fairly close to our new primary residence.

The upshot: Selling was a difficult decision, but not one that I regret. Whenever I want to visit my old stomping ground for a lengthy period, I can always rent a place.

During the sale, the buyer told my real estate agent that I was making a lot of money on the property, because I bought it 35 years ago, when prices were far lower. Yes, I purchased the condo for $91,000 and sold it for $380,000. But did I really make a lot of money owning this condo?

If you subtract the $91,000 I paid for the condo and the $24,000 I owed in closing costs, I netted $265,000. But you also need to subtract the other expenses I incurred:

  • Tens of thousands of dollars in mortgage interest
  • 35 years of property taxes
  • 35 years of home insurance
  • 35 years of homeowners’ association fees
  • Countless repairs
  • Remodeling costs

So did I really make a lot of money owning this condo? If it hadn’t been my primary residence—and thus provided me with a place to live—and instead the condo had been a second home, I wouldn’t consider it a great investment. I could have done far better investing the money in an S&P 500-index fund.

The S&P 500 has historically produced a total return in the 9% to 10% range, while real estate prices have outpaced inflation, but not by much. It’s also far less expensive to own an S&P 500-index fund, with annual expenses of perhaps 0.03%, or three cents for every $100 invested.

Of course, you can get some tax deductions from owning a vacation home and you can rent it out when you aren’t there. But is that enough to make it a worthwhile investment? I don’t think so.

Another thing to remember: An index fund doesn’t call you up in the middle of the night and complain about a leaky water heater. Yes, you can get someone to manage the property for you, but that means yet another expense.

I get it. It’s nice to have a vacation home in a place you really enjoy visiting. I, too, have a special place I visit many times during the year. But I realize one of the reasons it’s special is because I don’t own a second home there.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Changing My MindError of My Ways and Anybody’s Guess. Follow Dennis on Twitter @DMFrie.

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