How to avoid vacation home investment blunders

The Johanssens fell in love with Maui during the renewal of their wedding vows.

“What if we could live here part-time?” Juana mused. “You and I have had a dreamy two weeks here, Raj, and I could see the family coming together over here for holidays and major events. What do you think?”

“Why not?” her husband responded. “Our business is worth a lot – the business broker selling it for us has assured me that we will easily realize what we were asking for. Let’s do it.”

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And just like that, they decided to purchase a property there.

“Won’t the grandkids love this?” Juana quipped. Husband Raj smiled and responded, “They’d better – we spent part of their inheritance on this thing!”

In fact, Raj was a little nervous. Had he acted prematurely? He’d agreed to buy the vacation property only because he knew his business would sell at a pretty penny. And although the broker had not yet presented any buyers, he was confident his business would sell quickly.

Juana was already envisioning holiday celebrations at their Maui home. The whole family would love this place, and the grandkids could learn to swim, snorkel and so many other things. They would be creating beautiful experiences together.

“Let’s surprise the kids,” said Juana to Raj. “It will be fun to unveil this at Chad’s graduation next month.”

“Agreed,” said Raj. “What a great idea!”

In fact, the presentation of the Maui home at their grandson’s graduation was an incredible disappointment.

“Maui?” asked daughter Leila. “It’s so far away – and pretty expensive to fly there. What a lovely idea. I’m just not sure it will work out financially for us to go there that much. We’ve been trying to save for the kids’ college. And with their current school schedules and our work schedules, taking a couple of extra days off for travel will be challenging. I’m not sure we will be able to participate much.”

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“What’s the address, again?” interrupted son, Jim. “If it’s the property I just found as ‘sold’ on the internet, you’ve got some problems. The place looks great – but there are a whole lot of write-ups about the crime in that neighborhood. Did they tell you about that?”

“Well, frankly, I’m excited,” said daughter Barb. “I don’t have a job right now, and there’s nowhere else I’d rather be to job search than Maui. When do we get a set of keys?”

“Hold on,” said Juana. “I’m hearing some of you are going to find it hard to make it over for family celebrations, one of you thinks she’s going to live there free while job hunting, and we have just learned that the home we purchased is in a bad neighborhood. I think I have to sit down.”

At that moment, a flustered Raj got a call and stepped away. When he came back, his face was ashen.

“We have a problem, Juana,” he said. “It appears our financials were not done correctly, and the business is worth a whole lot less. This will also make it less attractive to buyers. I feel like we just boxed ourselves into a nightmare.”

SEE MORE: What to consider when buying a vacation home

“Can I ask a stupid question?” asked Johannsen’s other son, Raj Jr. “How will you manage the property from over here? Or are you just moving over there? It’s pretty far away.”

Poor Chad. No longer the spotlight of a well-earned graduation, he shuffled off to find friends.

Key points such as budget, taxes and dealing with inheritors have already been addressed in the past three articles of “Women, Money and Mindset.” Beyond this, you can see there are other important questions to ask yourself before buying a second home:

— How are you making your decision about this investment? Is it based on emotion, or have you thought through the rationale and expectations?

— Are you buying in a good neighborhood? How do you know?

— Do you have a plan as to how you will manage the property from afar?

Great experiences can be made in vacation spots, just as they can in your primary home. Be sure to think through and plan carefully before making a move to purchase a second home so that your mind and spirits are free to celebrate well.

Patti Cotton serves as a thought partner to CEOs and their teams to help manage complexity and change. Reach her via email at [email protected].