Vacation house is for the dogs

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After making some money, one of the thing that hits most people is the vacation house. It's a common story and almost always with a sad tragic ending.

Folks get sucked in by vacation houses the same way kids are attracted to ice-cream - taste good for a short time but damages your health in the long run.

It seems to be a good deal in the beginning: First of all, you're buying a property, which is an investment. You're not like, gambling, drinking or spending your money on frivolous things. Next, you seem to be going to that one favorite place time and time again. Instead of spending money on hotel rooms why not just buy an apartment/house there and save all that money? And you could even make money by renting it out to vacationers! Wow, what a deal!!! (Notice the three exclamation mark for impact).

Hate to burst your bubble but all you'll get is a great big pin for your troubles.

Vacation house is a drain on your money

By their nature, a vacation house is empty most of the time. But while it is empty, you still have to pay the mortgage plus plus. Even if you bought it cash, you would still have to pay for the assessment, quit rent, electric bills and what not. In short, it drains your money. As Robert Kiyosaki wrote in his book Rich Dad Poor Dad, anything that takes money away from your pocket is a liability. In this case, a bad bad liability.
Penny wise Pound foolish

It's true that you will not have to pay a cent for hotel rooms when you own a vacation house. But it's also true that you will pay a lot more in mortgages to the banks.

If you take a vacation at same place three times a year (which is plenty), the hotel rooms will cost you RM2,700 - assuming you stay for three days each time and the room cost RM300. Even if we double it, the cost is only RM5,400. And that is some major vacation right there.

But buying a house/apartment will suck at least RM12,000 every year from your bank account. And this is assuming a monthly mortgage of only RM1,000. This happens regardless of you taking a vacation or not!

This is the classic case of being penny wise and pound foolish.

Difficult to rent out consistently

Let's forget about the making money bit as well. That is just an advertising gimmick by the developer. In the advert, they flash a girl who looks like Sharon Stone (only more beautiful) and a guaranteed rental of 15 percent per year. Let me tell you that your chances of going out with Ms. Stone is a lot higher than getting that 15 percent rental. Oh, you could get that kind of return but your apartment has to be furnished to an acceptable standard. By the way, an acceptable standard is when you buy our standard furnishing package, which by the way is only an extra RM50,000.

In real life, consider yourself lucky if you can rent your vacation house twice a year. Yes, it that difficult to rent out. Why, you ask? Well, I go for vacation often but has NEVER rented a vacation house/apartment. Why should I when the hotel can offer much much better facilities?

And as a landlord myself, I can tell you that it is a lot of work renting out properties for the short term. The paperwork, running here and there - often times it is not worth the trouble. So much so that I will rent out properties for the short term only if the rental is padded by fifty percent!

Further, after the novelty has worn off, you'll be lucky if you go to the same place twice a year. Some of my friends who bought vacation apartments in PD are in this exact situation. They have an apartment there that they don' go to anymore after about a year of purchase. But remember that they still have to pay for the mortgage. One was so mad about the purchase that he called his apartment a flat with a better paint job! Aiyaa!

Lastly, it is worthwhile to know that it is also difficult to sell the vacation houses because of the reasons mentioned earlier. Add the fact that there are hundreds, maybe thousands on these houses available on the market, you'll see that vacation houses are indeed for the dogs, cats, birds and multi-millionaires only.

Copyright © Azizi Ali 2006

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