Dear Dave,
How do you feel about someone who buys a vacation home, then rents it out while they're away?
Randall
Dear Randall,
As long as you're debt free and buying with cash, I'm happy with it. A vacation home is “more fun” as you begin to build wealth. It's still a very large, very expensive toy. However, it can be a money maker for you if you play your cards right.
But here's another side of vacation rental that most people don't think about. You may make money, but there will probably always be a few weeks during the year when it sits empty. You probably won't get rich renting it out, but if you're talking about something that's a plan to reduce the annual cost of your toy, I don't think you'll be disappointed.
Be prepared to deal with a lot of carpet spills and damage from your guests, as well as regular maintenance and repairs. There is always something that needs attention if you are a property owner. But if you can handle all of that financially and emotionally, I think you'll be fine.
Good luck, Randall!
— Dave
Dear Dave,
How do you know when the time is right to buy a property and stop renting? I have been running my own small business for three years, and during that time, I have rented the building that houses my company. Thank you for your help.
John
Dear Jon,
I'm a big fan of hiring for the first few years after starting your business. Now, it's even better if you can work from home when you first start. But I understand that depending on the type of business you do, that route is not always possible.
You should only buy a property if you have a really good ideaindeedwhat your building needs will be, based on a solid track record. Business growth is a good thing. But in some cases, you may want to hold off on buying a property if you're growing too fast.
Don't make the mistake of focusing too much on real estate, and not enough on generating income and managing your growth wisely. You also want to make sure you'll be in whatever you buy for a while, because you don't want to be stuck with residual value—the remaining value of the asset after it's fully depreciated. So, yes. For the first three to five years of starting your business, it's always a good idea to lease. After that, and if your company has a proven track record of success, you can consider leasing with an option to buy, or—in the right case—buying the building.
Being debt free, of course!
— Dave
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