Buying a Home Vacation: Expense or Investment?

Buying a Home Vacation: Expense or Investment?

Property value appreciates. Period. And a Tagaytay vacation home is no exemption.

Most homebuyers, particularly the investors (yes, there are differences between the two) ask the question: Will it go lower?

The simple answer is maybe, but not anytime soon. Also, it will depend on several factors, and the stock market is just one of them.

Is a vacation home an investment or an expense?

Now the second question is whether the vacation home can actually become an investment or it is just another expense. 

There are pros and cons to buying a second home that we must look into first.

buying a vacation home

Pros of buying a home vacation

Long-term profits

Asset value fluctuates in the short-term. Nonetheless, a vacation home almost always appreciates or retains its already high value. 

One reason for this is that second homes are usually located in areas where housing is limited in supply and yet the demand is high. These are the popular areas in the Philippines like Tagaytay. 

Thus, you can always resell a vacation home in Tagaytay higher than the price you bought it with, especially those that are too far from Taal volcano. 

Rental income

A second home is in the right position to earn you passive income through rental fees. You may lease it on a short or long-term basis (from a few days to a few months to a year or more).

Remember, however, that utilities will definitely go up once you decide to rent out your second home. The monthly rental rates must be able to pay for itself including utilities, cleaning and maintenance services, and management fees if you want a third-party to handle all the rental processes for you.

Know also that rental fees vary depending on the season as well as the popularity of the location. Since it is in Tagaytay, the second aspect is already covered—Tagaytay is a popular tourist destination wherein people visit the place all year round.

Property appreciation

Again, as mentioned above, owning a real estate property allows you to realize an increase in equity or appreciation over time. This is more so because property values rise relative to inflation. 

With the recent inflation rates in the Philippines, vacation rental properties in Tagaytay or elsewhere are sure to see a property value rise in no time. Recovery of property prices could be slow for now, but it will recover, as real estate experts claim.

As such, holding onto that second home for the long-term is one of the best investment strategies you can make today.

Retirement head start

Being proactive with retirement is paramount especially that you are not getting any younger.

A second home is your guarantee that you will have a home when retirement comes more so if the metro gets too hot during the summer or rainy and flood-y.

The second home can become your refuge when you need one, or when conditions at the primary residence become unfavorable and unbearable.

Readily available venue

Other than the convenience of having a second home when you suddenly decide to go on a quick weekend getaway without worrying much about packing and unpacking, the second home can also be a place to host gatherings.

This can be a mundane reason but you should not dismiss the possibility of gathering your family or closest friends in one place and creating precious memories with them. Annual reunions to your place can be a tradition that will keep the bond stronger even when family members start to spread across different countries.

Look at it from the perspective of the intangible benefits. A second home, where all the happy memories are created, can be your most valuable inheritance to your children or grandchildren.

is buying a second home worth it

Cons of buying a home vacation

High upfront costs

Like your main residence, there are several expectations that come with buying a vacation home in Tagaytay. With more expectations come higher prices, however.

It may be even higher than the present value of your primary residence. The prices can go as high as Php50 million particularly inside exclusive communities on prime locations.

Other than that, the costs of furnishing your homes will also add up to the total upfront expenses that you need to shoulder.

High-cost mortgage

You always have an option to obtain the second home through a housing loan. Nonetheless, know that the amount of down payment and interest rates tend to be higher on vacation properties. 

There are several factors to consider such as your credit history and capability to pay. But if you can cover the highest possible down payment with your own money and loan the rest to buy your dream second home, the better. This may mean cutting down the tenure of the mortgage loan and the monthly repayments. 

Upkeep requirement

As the owner, you are responsible for its maintenance. 

Since vacation homes are usually more than 500 square meters, you will need several people to tackle the cleanup and upkeep. This also adds up to the costs of owning a Tagaytay vacation home.

A typical scenario in the Philippines is hiring a caretaker who will manage the home for the owner. Caretakers, on the other hand, are always the trusty household members. 

Of course, you cannot just hand it over to someone who has not been with the family for years. 

Unexpected costs

The above are expected expenses that come with owning a second home. Definitely, there would be unexpected costs along the way.

This is particularly true when renting out the place. Whatever they do with the place despite cleverly posted house rules to follow is beyond your control.

You might as well save 10% of the monthly rental income for these unexpected costs. This will be your emergency fund that should be different from your renovation and repair fund. Nevertheless, you also need to save for the latter.

Risky undertaking

There are at least two risks associated with owning a vacation property. First is the financial risk, which is basic to all investment tools such as real estate. Second is the risk of natural disasters.

We have seen the devastation that the eruption of Taal volcano has caused. The value of real estates in Tagaytay is expected to continue to go down because of the recent events relating to the Taal Volcano eruption. Its attractiveness diminished.

buying a vacation home

When the vacation home becomes an expense?

A vacation home becomes an expense when the cons mentioned above outweigh the pros. 

You paid for it with higher upfront costs with equally high mortgage payments, it is definitely an expense. 

However, what can make the matter worse is when the maintenance and unexpected costs are piling up that 20% of the savings for both purposes have already been exhausted without necessarily earning from it. 

Also, when the risk is too great to deliberately ignore, it can be also considered as an expense.

How to turn a vacation home into an investment?

It becomes an investment when you are earning from it through monthly rentals and other such endeavors. For instance, vacation homes that are the setting of a commercial or movie can earn high rental rates for you.

That is, you should be able to network, negotiate, and market your vacation if you want to earn passive income from it. 

Steps in buying a home vacation

Now that we’re here, there are at least broad steps into acquiring the vacation home in Tagaytay of your dreams.

Determine a location

The first step is to find a location where you want to buy the second home that is to your liking. Consider several areas, but ones that are closest to you so you need not travel far to visit it when you want to.

Why Tagaytay

Over and over, Tagaytay is mentioned. However, with the Taal volcano eruption comes with considerations.

First, you can still buy a second home from Tagaytay but consider those that are farthest from the volcano. Second, now is the perfect time to take advantage of opportunistic sales. Lots of homeowners are selling their properties for lower prices. You can buy one but you have to be patient because the prices and value of these properties may eventually rise again. That would take years or even a decade.

Establish a price range

There are a variety of properties that you can buy. However, you must set a budget first. 

This will depend on a person’s financial situation. So whichever price range you set, make sure you factor in down payment, closing cost, and furnishing expense. 

The rule of thumb is that the total of these factors must be 33% of your total budget for owning a vacation home.

Look for a potential property

Your final step is looking for a potential property. Before you do that, list down all your non-negotiables and compromises you are willing to take. 

You may do an Internet search. Focus on properties that are within your price range so you won’t be heartbroken finding a vacation home that you cannot afford. Property websites include filters including setting up a minimum to maximum price and sorting listings from lowest to highest prices or vice versa.

Once you have a shortlist of three to four properties, inspect the properties by yourself. In this way, you will gauge which one is the right vacation home for you and your family.

The final tip here is don’t rush buying a vacation home. Options and locations are two of the things you need to consider.

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