If you own a vacation home, it's important to consider what will happen to it after you're gone. Many people wish to keep vacation homes within the family, but ensuring this can be complex.
Vacation homes, intended as relaxing retreats, can sometimes become sources of conflict among family members after the original owners pass away. Some relatives may want to keep the property for personal use, while others might prefer to sell it for financial reasons. Disagreements can also arise regarding maintenance costs or scheduling usage among multiple families.
Estate planning plays a crucial role in ensuring that your vacation home is managed according to your wishes and does not become a burden or cause disputes among heirs. Below are key factors and strategies to consider when incorporating a vacation property into your estate plan.
Ownership of Second Homes Owning multiple properties has long been associated with wealth, and there is some truth to this perception. A 2023 survey of financial advisors working with affluent clients found that about two-thirds of them own second homes. Among those who don't, one-third expressed interest in purchasing one.
However, second home ownership is not exclusive to the wealthy. Another 2023 survey revealed that 40% of Americans own a vacation home, and among those who don't, nearly 75% are considering buying one.
In total, the U.S. has approximately 6.5 million second homes, representing about 5% of the total housing market. Florida leads with the highest number of second homes at 15%, while Wyoming has the fewest. Half of all second homes are concentrated in eight states: Arizona, California, Florida, Michigan, New York, North Carolina, Pennsylvania, and Texas.
Affordability varies based on location. Many Americans report spending under $200,000 on a second home, although they tend to be more expensive than primary residences. In 2023, the median value of a second home was $475,000, compared to $375,000 for a primary residence. Additionally, the share of mortgages for second homes decreased to 2.8% in 2023, down from 3.6% in 2022 and 5.1% in 2021.
This decline in second home purchases is attributed to the pandemic-driven surge tapering off, rising interest rates, fewer remote work opportunities, and limited inventory.
While second home ownership rates are similar across income levels, the motivations behind purchasing differ. Wealthier individuals often buy second homes for leisure and future retirement residences, whereas others may view them as both vacation spots and sources of rental income.
In 2023, the short-term rental market generated approximately $64 billion in revenue, with average daily rates around $300, leading to annual earnings of about $26,000 for 785,000 hosts.
Even if a vacation home isn't used for rental purposes, it likely contributes to an owner's overall wealth. Real estate remains a significant asset for most Americans, playing a major role in wealth accumulation. Between 2013 and 2023, the value of the U.S. residential real estate market increased by $19 trillion.
Currently valued at approximately $43.5 trillion, the U.S. residential real estate market surpasses the market capitalization of the S&P 500 ($36.7 trillion) and the total value of all U.S. public companies ($40 trillion).
Learn more about ways to pass down a vacation home. To determine the best way to protect your vacation home, give our office a call today at 605-275-5665 for a free initial consultation.