Unless you are incredibly rich, it's highly likely that your vacation property is smaller than your primary residence. Having a smaller vacation property is a rational choice given you don't live there as long as you do your primary residence. Further, it's unlikely you need as many extra rooms for guests, an office, or entertainment since you're on vacation.
That said, having a vacation property that is too much smaller than your primary residence might feel like too steep of a downgrade. As a result, you don't want to go too frugal in an already superfluous purchase.
The Reality of Buying a Vacation Property
Buying a vacation property will likely turn out to be a suboptimal financial move for most people. You likely will not use it as much as you think to justify the cost.
And given you can only live in one place at a time, the more you stay at your vacation property, the less you will stay at your likely more expensive primary residence. The true cost of a vacation takes into account the cost of not living in your main home.
Beyond just usage, vacation properties come with their own set of responsibilities: maintenance, HOA fees, property taxes, and potential rental management if you decide to rent it out. Many buyers underestimate the ongoing costs and overestimate their ability to offset expenses with short-term rental income. I see the same underestimation with buyers who want to do gut remodels.
But if you still want to buy a vacation property you don’t need, I thought it'd be a good idea to come up with a framework for how much vacation property you should buy for how much money.
The Ideal Vacation Property Size
If we assume that buying a vacation property is a poor investment, then it's best to buy the smallest and most efficient vacation property you will still enjoy. This way, the drag on your net worth won't be as strong.
Studio Vacation Property Size
The cheapest vacation property you can buy is a studio. If you have two queen beds, you could fit a family of four with two people sharing a bed. Or, if the studio is large, one person could sleep on a sofa bed.
The problem with buying this type of vacation property is that it may be no better than a large hotel room. You might as well stay flexible and rent when on vacation if you are OK with this type of living arrangement. There will be little-to-no cost savings by owning a studio vacation property.
The studio vacation property really only works well if you are single, a couple, or a couple with one child who would like a kitchen. Your primary residence would also have to be no bigger than a two-bedroom home or apartment for you to tolerate living in a studio for more than a week.
One-Bedroom Vacation Property Size
A one-bedroom vacation property starts to feel more luxurious given there are now at least two rooms. The parents can sleep in one room and the kids can sleep in the other. If you are single or a couple, a one-bedroom vacation property provides plenty of space. In addition, a one-bedroom vacation property is also larger than your typical hotel room or hotel room suite, which makes it more special.
Two-Bedroom Vacation Property Size
When you get to a two-bedroom vacation property, you can comfortably accommodate a household that's used to living in a three-bedroom primary residence or larger. With at least three separate rooms, the two-bedroom property can conceivably sleep up to eight. But realistically, a family of four or five is the maximum number of people to fit comfortably in a two-bedroom.
We have owned a two-bedroom, two-bathroom Lake Tahoe vacation property since 2007. For 12 years, it felt too big for just my wife and me, so we either rented out the one-bedroom suite or the studio when we came up. However, now that we have two young kids, the place felt just right at about 1,020 square feet for about four years. There was no wasted space.
However, after we bought a larger house in 4Q 2023, our two-bedroom vacation property now feels a little tight after four nights. Just the other morning, I was in the bathroom at 6:45 AM when my boy came in saying he needed to pee. I told him to wait just five minutes, but he said he couldn't hold it and suggested going to the other bathroom. However, I didn't want him to go because I was worried about waking up my daughter.
It's interesting how our preferences change over time all based on relativity. The larger your primary residence, the larger you’ll want your vacation property to be.
Three Bedrooms or More Vacation Property Size
A three-bedroom vacation property at a resort becomes harder to find. If you do find one, the prices tend to be astronomical because they might be reserved for penthouse suites. On the other hand, finding a three-bedroom single-family home vacation property is easier.
Unless you have a family size of five or greater, a three-bedroom vacation property feels a little too wasteful. You're already probably spending less than 30 days a year at your vacation property. To have all that extra space not be used feels a little like driving an SUV solo.
Granted, I'd love to be able to comfortably afford a three-bedroom condo or beachfront property. But I wouldn't feel good about it unless I used the place for at least 45 days out of the year and rented it out for at least 210 days a year. Both are not easy to do.
How to Determine the Ideal Number of Bedrooms for a Vacation Property
Simply add up the number of bedrooms your family uses for sleep in your primary residence and subtract one. From a cost and benefit point of view, that is the ideal number of bedrooms you should have in your vacation property.
Your primary residence could have extra empty bedrooms and offices. However, these don't count in calculating the ideal number of vacation property bedrooms you should own. Because again, you're on vacation and want to have the most efficient use of space as possible without crimping your lifestyle too much.
This formula highlights the importance of choosing a primary residence that perfectly suits your household and budget. Once you secure an ideal home with a well-designed layout, your vacation property purchase will be a more deliberate and strategic decision.
Regarding the ideal number of bathrooms in a vacation property, I say one full bathroom for every two people in your household for maximum efficiency and convenience.
A Vacation Property Buying Guide to Follow
If you can view your vacation property as a lifestyle investment instead of as a financial investment, you'll find your asset much more rewarding. You'll stop thinking about your return on investment and think more about your return on life.
In order to never have your vacation property feel like a burden, here’s my vacation property buying rule: spend no more than 10% of your net worth on a vacation property purchase price (not down payment).
For example, if your net worth is $5 million, spend no more than $500,000 on a vacation property. If you can't buy a vacation property that has the ideal number of bedrooms within the buying guideline, I'd pass. Just rent.
In addition to keeping your vacation property to 10% of your net worth or less, don't buy one until you have kids. Before you have kids, you want to have maximum flexibility to vacation anywhere in the country or the world. If you own a vacation property, you will feel obligated to take most of your vacations there, which can start feeling mundane after a while.
Stretching the Vacation Property Buying Guide
If you foresee a rapid increase in your income and net worth, then you can probably stretch your vacation home budget to 20% of your net worth. But I don't recommend doing so based on all the worry and stress you may go through. Buying a vacation property for enjoyment and then constantly worrying about whether it will financially ruin you is counterproductive.
I feel so much better now that my vacation property is worth less than 5% of my net worth versus when it was ~30% of my net worth at the time of purchase. Oh how unwise a purchase I made at age 30. A vacation property must feel affordable to be a successful purchase.
Before buying a vacation property, make sure you calculate how much you'll actually be able to use the vacation property a year. Run a cost of ownership comparison to the cost of simply renting a nice place anywhere you want.
Overestimating the usage time is quite common. The reality is that most people can only take off at most six weeks a year. Only if you're unemployed, financially independent, or have a location independent business can you truly maximize your vacation property.
Condo At A Resort A Single-Family Home
My final thought before you buy a vacation property is to decide between buying a condo at a resort or a larger single-family home. I compared both options and ultimately prefer owning at a resort with all the amenities, despite the high HOA fees. Not having to do any of the maintenance is huge for lifestyle reasons.
When I asked my kids which they preferred, they also chose the resort condo over a friend's single-family home we sometimes vacation at, even though the house costs at least 15 times more.
While the expensive home sits on a 50+-acre lot with a private swimming pool, hot tub, and tennis court, our condo offers even more: three swimming pools, three hot tubs, a water slide, two tennis courts, a golf course, a fishing pond, three restaurants, a game room, an ice skating rink, and ski-in/ski-out access on hundreds of acres. In their eyes, the condo is simply a much more fun place to be.
Having a property manager for your single-family vacation home is essential if you want to minimize stress and upkeep. But of course, that costs money. With a condo at a resort, the on-site property manager and maintenance crew are always available, and the HOA fees cover all exterior maintenance automatically—providing great peace of mind, especially during heavy storms.
A Vacation Property is a Luxury Expense
Nobody needs a vacation property. It is a luxury expense that should not be bought unless it is 10% or less of your net worth or if you’re in decumulation mode. If I could have done it over again, I would have waited to buy my property 12 years later in 2019, two years after our first child was born.
That said, owning our two-bedroom vacation property has enabled us to live in nicer accommodations than we otherwise would for the past 18 years. It has also encouraged us to take more family ski vacations, which is helpful since I sometimes work too much and got bored of the activity long ago.
A vacation property is meant to be enjoyed. If you do buy one, make sure to actually enjoy it instead of constantly stressing over maximizing its rental income. The only way to do that is to buy one that’s truly affordable—otherwise, you’ll likely regret your decision.
Readers, do you own a vacation property? How does the vacation property size and cost compare to your primary residence? How did you determine the ideal size and amount to spend on a vacation property?
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The Ideal Vacation Property Size Depends On Your Primary Home is a Financial Samurai original post. All rights reserved. Financial Samurai began in 2009 and is the leading independently-owned personal finance site today with ~1 million pageviews a month. Everything is written based off firsthand experience and expertise.
My ski condo is actually worth more than my primary residence. When I bought it seven years ago it was worth less than my primary by about 20%.
Very good investment then! So are you considered pretty rich? Or do you live relatively frugally with your primary residence?
I really don’t know anybody whose vacation property is worth more than their primary.
Not considered rich. I was always dreaming of owning a place in the Rockies and was hoping to buy after retirement. I got lucky and bought just before a major investment in the resort and figured it was buy now or risk getting shut out. We live pretty frugally, and my primary residence is paid off. I’m glad I bought when I did because everything more than doubled in seven years. I average 30+ days in the ski season and plan on using it in the summer more. I’m in the rental pool and actually make a small profit. Planning on retiring at the end of the year so I’ll be using the condo even more.
We bought a 4 bed, 4 bath Tahoe mountain home pre-Covid. We had plans to hold big family holiday parties regularly and short-term rent the house. Neither idea really panned out. We did a ski-lease with friends but that barely broke even. We held a few memorable Christmases there also but not enough to justify the place. And the huge house is an energy pig, and needed the siding to be stained again and the drive replaced. I tell my partner that there is no way we could afford to heat the place if we lived here full-time. It is usually just us two bouncing around in the big space with two cats traumatized by the drive up the mountain. On the other hand, it is nice to have a place to escape to for longer periods and get a change of scenery that is within driving distance.
Thanks for sharing. Hopefully it has at least appreciated a decent amount?
They say to buy utility and rent luxury. I kinda agree, but meet that maxim in the middle. I like luxury we care about for quality of life in the place we spend the most time – space, ocean view, quiet, safe, comfortable for fam and friends, and the very specific furniture the wife loves.
In contrast, at the moment, I’m renting a multimillion dollar 3bdx1.5ba bungalow w/ a yard, storage, parking etc that is a 5min walk from one of the best surf breaks in San Diego. We’ve been staying here for a couple winter months each year and even if we kept doing that at our current rent price for the next 40 years, we still wouldn’t have spent enough to match just the down payment for this property (and I’d probably be dead, which is a bit of a bummer while vacationing). The only way I’d buy a place like this is to run it as a short term rental when I’m not using it, but for now at least, I don’t want to deal with a rental 1200 miles from home.
Also, I don’t think I’d buy a vacation property if I wasn’t confident there was something other than vacationing that would regularly take me to that location for a long time – something like extended family. There are so many places to discover on this planet and time always feels short, so I don’t like the idea of feeling obligated to keep returning to one spot only for vacationing. We learned that lesson a while back when we bought a couple lots with a small cabin on a beautiful island near Canada. We just didn’t go there enough after the first couple years and it is a lot of work to maintain, so always had a project list when we went there, most of it for me. We’ll be selling it soon.
Hopefully you found that thing from Financial Samurai!
https://www.financialsamurai.com/real-estate-investing-rule-rent-luxury-buy-utility/
Of course! :-)
I bought a ski condo in 2016. Best money I ever spent, even when using it monthly the STR income crushes my LTR properties. Yes it’s some work vs nearly passive LTR, but I highly recommend getting one. Even at todays valuations I’m considering getting another one. What a great retirement setup, have 2-3 vacation properties in places you love to go and the income is your little pension.
As far as size goes, I like the small ones (1-2 bedrooms). Kids can bunk up they don’t care. Smaller units are easier to manage, lower costs, way less party guests etc.
What area did you buy? What about HOA costs etc?
Great insights. Calculating your realistic number of annual nights usage is so important. And yes, it’s easy to think you’ll use it more than reality.
This reminds me of time shares. I was pitched hard on one when vacationing in Hawaii one time. And although the aggressive sales team was very good at their job, I was very skeptical due to the deal structure. Having to share a calendar with other owners was my biggest hesitation. In reality, how likely would we be able to use our own timeshare when we wanted during peak holidays if everyone else wanted to go there too? A lot opens up with a flexible schedule, but it wasn’t the right fit for me. And I am relieved to have walked away free from that sales office.
I also like your guidance on keeping a vacation property to 10% or less of one’s overall net worth. Sage advice.
I have a 4 bed 2 bath home, about 3k sqft in the Seattle area. 2 years ago, I bought a duplex in downtown Leavenworth, a fun little Bavarian Village east of the Cascades. My kids were on the freestyle team at our local mountain, a nearly 2 hour drive each way with traffic from my home. The duplex is 1050 sqft each side. 2 bed 2 bath. 35 minutes to the hill and riding distance to many great mountain bike trails.
I rent one side out which covers half the mortgage. We have 3 kids, 2 bunk beds and a queen plus a sleeper sofa. It was about 13% of my net worth. I figure since I rent half of it out, it’s about 7%.
We use it often, but since I started my remodel I’m renting it out to lifties for the winter. I wish I had bought it years ago when the kids were young, now they have so many activities, its hard to get everyone over there together. My wife absolutely loves the place. It’s a lot of work for me to maintain, but I do enjoy spending time over there, especially since it gets a lot more sun then our side of the mountains. I would do it again, but try to buy sooner.
“I wish I had bought it years ago when the kids were young, now they have so many activities, its hard to get everyone over there together. My wife absolutely loves the place”
Great points. We bought 12 years too soon, but are now enjoying our vacation property with our young kids.
Your wife loving the place is HUGE. I would do anything to get and maintain that something if a family member loved it. It’s like that loud Provider’s Clock ticking.
Spending 13% of net worth is in the comfortable range, so you’ve done it right. Hopefully the maintenance won’t be too much of a growing burden down the round. But if it is, it’s not going to crush your finances.