Should you Buy a Vacation Home Before a Starter Home?
At the height of the pandemic, a millennial packed up his family of four in Brooklyn and sought refuge in upstate New York. Buying property was no small investment. Cities were largely shut down. Rural prices seemed attractive.
Housing in Brooklyn was out of sight. Buying a home is Brooklyn for less than one million encouraged him to look for properties in upstate New York. He could purchase twice the size for less than a third of the Brooklyn prices.
The fact that real estate is cheaper outside of large cities is nothing new. More to the point, the trend in buying “vacation homes” before a “starter home” comes down to the potential for a return on investment. But will this vacation home buying trend continue as the pandemic subsides? Here’s what you need to know.
Why vacation homes are the new starter homes
With exorbitant housing costs in major cities, many homebuyers opted to continue renting their primary residence while actually owning property in less competitive markets. The pandemic accelerated this trend.
According to Money.com, the average millennial buyer who hopped on this trend in 2021 were able to spend $285,000 on their vacation home purchase. This was well below the nation’s median home price of $386,000. Vacation homebuyers could earn extra income by renting out their property, build wealth, and have a place to escape to.
The chance to build equity in a market that seemed less attainable to them than any previous generation made the decision to buy a “second” home a potentially good investment. Will that trend hold true as the pandemic subsides?
The shift back to a seller’s market
During the pandemic, the vacation home purchased seemed like a win for millennials. Low costs, pandemic escapes and the first chance in their lives to become homeowners. Unfortunately, the pandemic induced housing market is no longer as lucrative as it once was. Many first time buyers were caught off-guard by all the unexpected costs associated with owning a home.
Consider the hidden costs of home ownership
In addition to upfront costs and monthly mortgage payments here are some other expenses to consider.
- Property taxes. These can vary depending on your location.
- Homeowners insurance. The average homeowners insurance in 2020 was $1,249 per year.
- Utilities and maintenance. If you’ve been a renter, maintenance costs were handled by the landlord.
Taking on a mortgage in a major city is a major hurdle to millennials. Vacation homes in more affordable areas will be more manageable month to month with the potential for a lucrative return on your investment.
Unfortunately, the housing market of the height of the pandemic no longer presents the same perfect storm for millennial buyers as it once did. A “second” home could still be the right move for your first purchase, but the unique buyers’ opportunity created by the pandemic seems to have passed.