I’ve spent the last few weeks looking for a parcel of land to buy. And what started as a search for a multi-acre mountain property that we could use for camping, fishing, hiking, and other recreation has now evolved into finding a mountain cabin vacation home.
Looking for a Place to Get Away To
It seemed simple enough. I wanted a place where the family could go on the weekends to spend some quality time together away from our normal hectic lives. No work, no school, no swim team, and best of all, no screens.
Ideally, I wanted 10 to 30 acres of wooded, mountain terrain, with a water source on the property located within 90 minutes of our house. We could tent camp, or haul a trailer, or even eventually build a cabin.
But as I started the search, I began looking at properties that already had finished cabins. They also had wells, septic systems, and electricity. Essentially, these are turn-key, move-in ready vacation homes.
And while the appeal of having everything already up and running is strong, it also detracts from my original intention.
I Found the Perfect Mountain Cabin
Not only is the idea of buying an existing cabin different than my original intention, the cost of the vacation home is significantly more than the cost of the vacant land.
Additionally, when you start including the upkeep and other ongoing costs of owning a home, the “true” cost can easily be 10x the cost of an open site.
Let me explain in more detail.
As an example, I came across a 20 acre lot selling for $40,000. It meets all the attributes I am looking for — location, topography, cost.
At the same time, I found a fully-renovated mountain cabin with 5 bedrooms on 4 acres selling for $200,000. The land is pristine and also located approximately 90 minutes away.
Before I started writing on Financial Slacker, I probably wouldn’t have thought twice about buying the cabin. If I put 20% down and financed the remaining amount over 30 years, my payment would be a little over $800 per month.
My initial out-of-pocket expense with either the vacant land or the cabin way would be the same — $40,000.
And while the cabin would require a monthly payment, a portion of that would be tax-deductible and I could make an argument that the net amount is comparable to what we spend on other forms of recreation.
What Will the Mountain Cabin Really Cost?
I might also be able to justify the additional cost of the mountain cabin based on the need to buy a trailer or eventually build a structure on the vacant land. It would certainly be more functional with a place to stay on the property.
But that’s only part of the “true” costs of owning a house as compared to owning vacant land.
Because the land is improved, the property taxes and insurance expenses would be significantly greater. Additionally, the cabin will have utilities as well as maintenance expenses.
When I add up all the ongoing costs, I estimate the cabin would cost me an additional $8000 per year. When you add that to the mortgage, the additional annual expense is nearly $18,000 more than just buying the vacant land.
How Bad Do I Want a Mountain Cabin?
Today I look at spending money differently than I once did. Rather than simply looking at my budget and deciding whether I can afford something, I now look at ongoing expenses in terms of how much passive income I will need to pay for those expenses.
So assuming a 4% withdrawal rate, to cover both the cost of the mortgage as well as the ongoing expenses, the cabin will require an additional $450,000 in invested capital. This amount is on top of the $40,000 paid up front.
So the question becomes, do I really want to spend nearly $500,000 to buy a mountain cabin to be used as a vacation home?
If I can earn $100 per hour after taxes and expenses, it would still take 2.5 years of full-time work just to pay for the house. Is it really worth it?
When I look at the purchase this way, the answer is pretty obvious. For that level of investment, I could take some pretty nice vacations every year. Or, I could rent a comparable cabin in the same area for a fraction of the cost of owning one.
So as appealing as it initially sounds to buy a mountain cabin vacation home, at this point, I am redirecting my efforts back to buying vacant land to use for our outdoor recreation.