Are vacation properties worth it

##Buying a beachfront property or a vacation villa may be easy for rich and wealthy but not for common middle-class people.

The introduction of the vacation property concept gave hope to those people who could not afford to buy a brand-new vacation home. That is one of the reasons why the vacation property industry has grown by leaps and bounds ever since its inception in the United States.

One of the aspects of a vacation property that attracts most people is that they can have a wonderful vacation home without having to worry about its upkeep and maintenance, but at the same time, people have many misconceptions about vacation properties.

One of the biggest misconceptions is that they compare vacation properties to regular real estate property and consider it as an investment option. But in fact it should be thought of as an investment in your dreams i.e. vacationing at a place where you want to go every year. Investing in real estate could reap profitable returns but if you invest in a vacation property it may not be guaranteed in fact you may end up losing money.

But what if you still want to buy it and you expect no profit from it but neither loss also at the same time. There is always one question in the minds of those people who are planning to buy tvacation properties. Is it really worth buying a vacation property? To answer this question you have to go through an analysis of various factors. An analysis should consider factors like comparable rent of alternative accommodation, appreciation of the vacation property and your finance rate. How do you do it? Here is a simple calculation.

Consider the worth of your investment as profitability. The profitability should be a measure of the comparable rental rate, rate of appreciation and your finance rate. If the sum of all these is a negative number then, assume that you are losing money in your investment. The rental rate is the ratio of the rent of that vacation property to the buying price of that vacation property. Suppose if corresponding rent of that vacation property is $1,000 and the buying price is $10,000 then the rental rate is 10%. Now if we include the annual maintenance cost, membership and all other miscellaneous expenses, it comes around $500. So the actual saving in rent will be $500 now and the rental rate will be the ratio of $500 to $10,000 which gives us 5%.

Now if we assume the annual appreciation of that property is 10% and the rate of our finances is 16%. If we add rental rate and appreciation and subtract the finance rate you will end up with a negative percentage which means you are losing 1% every year compared to rent. But this formula is only a rough calculation of the profitability of your investment and may not be accurate. This is just to give you a start up. The depreciation rate may vary and so as the finance rates.

The maintenance fees and other fees may also vary with different locations. Some resorts have reasonable maintenance fees and other fees but some exorbitantly high fees. So, this should also be a factor in deciding which resort to choose, it is not a smart idea to pay unusually high fees when you don’t know whether you can utilize the property year after year and you may think of renting out the unit which is not a profitable proposition either.

Another good idea is to add up the cost of your vacation property for the entire year i.e. all fifty-two weeks and see. For the above investment it may be around $520,000. But, does the vacation property cost that much if somebody wants to buy it as a real estate property? The extra money goes into the pockets of real estate developers who are selling the vacation property. So carefully weigh in all the factors discussed above before buying a vacation property.