By Scott Burns

Q. What do you think of a vacation home as an investment? My wife and I have about $70,000 a year from Social Security and my state pension. I am 67, she is 65. We also have about $200,000 in variable annuities and another 250,000 in 401(k) and 457 plans.

Our daughter lives in Arkansas and we like to visit several times a year. We are wondering about buying a condo perhaps and then having a place to stay (relatively) rent-free. I was thinking about withdrawing enough from the annuity for a down payment and then the monthly mortgage payment.

I am thinking this may give us more diversification' during these economic conditions. We owe about $95,000 on our home mortgage at 3 7/8 percent for 15 years. We also have a car payment at 3 percent.  B.B., from Austin, TX

A. The answer depends very much on how you currently spend your retirement income— and how much you draw from your $450,000 in retirement accounts. If your current $70,000 retirement income easily covers your regular expenses, then buying a low cost condo in Arkansas may make sense as a personal decision.

But I doubt that it makes sense as a “diversification” decision because you already have a large portion of your net worth and income committed to residential real estate.

This is not unusual. It is a fact of life for most middle income Americans. For most Americans home equity accounts for much of net worth. That’s one reason the housing bust has had such a numbing effect on our economy. Buying a second home would amount to “doubling down” on your housing investment because it would increase the percentage of your assets that depended on the real estate market.

Unless you plan on eventually moving to Arkansas, you would probably be better off renting. Although you may pay a premium for a short-term rental, your total out-of-pocket cost is likely to be significantly lower than the total cost of owning and financing a second home 12 months a year.