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. 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 240 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.
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 guideline, I’d pass.
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 freedom 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 25% 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. 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.
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 a lot of 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.
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 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.
Vacation lodging nowadays is just way too expensive. We would never spend $1,000+/night for a two-bedroom condo during a regular winter season weekend. So in that sense, owning the vacation property has encouraged us to take more family vacations, which have been enjoyable for all.
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.
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