Planning to Relocate or Buy a Vacation Home? What to Consider First

For many families, the idea of a vacation home carries an emotional pull that goes beyond square footage or views. It’s about gathering children and grandchildren in one place, creating traditions and building something that lasts beyond a single generation.

Before focusing on price trends or interest rates, however, it’s worth slowing down to ask why: Is it primarily about lifestyle? Retirement planning? Creating a place the whole family comes back to, year after year?

That answer shapes everything else, from location and ownership structure to liquidity and estate planning. Without it, it’s easy to treat a vacation home as just a real estate transaction, when in reality it often becomes one of the most consequential financial decisions a family makes.

Market conditions may influence timing, but they shouldn’t drive strategy. Second-home mortgage originations recently fell to their lowest levels since 2018, representing a record-low 2.6% of all mortgage activity. At the same time, luxury inventory has risen sharply, with high-end listings up more than 40% year-over-year in some markets[i]. For affluent buyers with strong liquidity, this environment looks like a buyer’s market and may present an opportunity.

But opportunity alone is not a strategy.

Consider the Full Financial Picture

For high-net-worth families, a vacation property is rarely just a lifestyle decision. It can affect income taxes, property taxes, estate planning, liquidity and how wealth eventually passes to the next generation, often in ways that are  underestimated.

Start with taxes. Some families consider relocating to states with no income tax, and currently, nine states fall into that category. But income tax is only part of the equation. Property tax burdens vary dramatically:  states like Illinois and New Jersey carry effective property tax rates near 1.8%, while  Hawaii and Alabama average closer to 0.3% to 0.4%. Even within so-called “tax-friendly” states, local property taxes can significantly change the long-term cost of ownership. Texas has no state income tax but its effective property tax rate averages around a 1.36% [ii], a detail that catches some buyers off guard.

Residency rules complicate this further. Many states apply a 183-day test to determine tax residency, and individuals who don’t clearly sever ties to a prior state can, in some cases, end up being treated as residents of both, exposing them to overlapping tax claims. For affluent households with business interests, trusts or multi-state holdings, getting it wrong can be costly.

Estate taxes are another area where assumptions can be expensive. While the federal estate tax exemption remains historically high, rising to $15 million in 2026 under current law, several states impose estate taxes starting as low as $1 million to $3 million in asset value. Cross-state ownership can further complicate matters and when properties are held across multiple jurisdictions, estate planning coordination becomes essential.

The stakes for high-net-worth families are real. An estimated $105 trillion is expected to transfer from baby boomers to younger generations over the coming decades, with roughly $25 trillion tied to real estate[iii]. Vacation homes are often part of that transfer and, depending on how they’re structured, can either facilitate or frustrate long-term family planning.

Ownership structure matters more than most families realize at the time of purchase. Approximately 20% of second homes are held through limited liability companies (LLCs)[iv], often for liability protection and to make shared ownership among family members more manageable. A well-drafted operating agreement can establish cost-sharing, reservation windows, governance rights, and buyout provisions, reducing the likelihood of disputes or forced sales through partition actions.

Beyond taxes and legal structure, the ongoing costs deserve equal scrutiny. Nationally, homeowners’ insurance premiums rose roughly 24% between 2021 and 2024. In high-risk regions, increases have been far more pronounced. Florida premiums now average nearly 150% above the national average, with some coastal properties carrying annual premiums exceeding $8,000. Building material costs have climbed more than 35% since 2020, pushing up replacement costs and coverage requirements alongside them. The typical American homeowner spends more than $21,000 per year on maintenance, property taxes, insurance, utilities and related expenses, a figure that is often significantly higher in vacation markets[v].

Liquidity is another critical factor. Real estate can appreciate over time, but it remains a relatively illiquid asset. Tying substantial capital into a second home may limit flexibility for investment opportunities, philanthropic giving or portfolio diversification, particularly if family members later disagree about its future. While vacation properties can strengthen family bonds, advisors frequently note that they are among the most contested inherited assets when expectations around usage, cost-sharing or eventual sale are unclear. Clear governance provisions today can help preserve both liquidity and family harmony tomorrow.

The goal here isn’t to talk anyone out of the purchase of a vacation home. On the contrary, a thoughtfully structured vacation property can become one of the most meaningful things a family owns, a place where traditions take root and values are shared across generations.

The key is alignment. Does the property support your broader wealth strategy? Are residency, estate and ownership structures coordinated with your long-term goals? Are ongoing costs sustainable under different economic scenarios? And does the whole family understand what ownership actually means before anyone signs anything?

The best outcomes tend to happen when the lifestyle decision and the financial plan are built together. Bringing your financial advisor, CPA and estate planning attorney into the conversation before signing a contract makes a real difference. A vacation home can be one of the most rewarding things a family owns, and getting the structure right from the start is what makes it stay that way.

 

Sources:

[i] Source: Redfin, MortgagePoint, “Demand for Vacation Homes Hits Six-Year Low,” May 8, 2025.

[ii] Source: Intuit TurboTax, “States With Lowest and Highest Income Taxes,” February 12, 2026.

[iii] Source: CNBC, “What Wealthy Parents Need to Know About Giving Real Estate to Their Kids,” August 23, 2025.

[iv] Source: Pacaso, “The Benefits of Owning Real Estate in a LLC,” October 15, 2025.

[v] Source: Bankrate, “Hidden Homeownership Costs,” June 8, 2025.

 

IMPORTANT DISCLOSURES 

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. 

 This presentation includes forward-looking statements and opinions, including descriptions of anticipated market changes and expectations of future activity. Forward-looking statements and opinions are inherently uncertain, and actual events or results may differ materially from those reflected in the forward-looking statements. In addition, all expressions of opinion are subject to change without notice in reaction to shifting market conditions. Therefore, undue reliance should not be placed on such forward-looking statements and opinions.