After spending a few weeks in paradise, you might be tempted to buy real estate in your favorite vacation destination… After all, it’s hard to put a price on peace and relaxation, and if you’re interested in real estate investing, buying a vacation rental can be a great place to start! So, if you’re wondering whether investing in vacation home rentals is a smart financial move, here’s a quick rundown of things to consider that will help you decide if this type of real estate investment would be a good fit for you!
Perks of Owning a Vacation Home Rental Property
Millions of people worldwide have already taken the leap and purchased a second home for rental and/or vacation purposes. The advantages can be great, which is also why online platforms like Airbnb and VRBO have been so successful over the last ten years. Here are just a few of the benefits that come with investing in vacation home rentals:
- Extra Income
Even if the additional income generated by your vacation home is only enough to offset most of the costs associated with ownership, it will leave more money in your pocket that simply buying a second home that sits empty whenever you aren’t using it. Still, the reality is that – depending on where you buy – it’s easy to make upwards of $1k USD per month (after expenses) from renting out a nice vacation home in a good location. The key lies with either listing your new home on all the best vacation rental platforms and creating a seamless guest experience yourself, or opting to work instead with a professional property manager who can handle both the online marketing and day-to-day operations to maximize your return on investment (ROI).
- Rapid Appreciation
According to the simple law of supply and demand, properties in popular vacation destinations tend to see higher-than-average annual appreciation, which means you are also likely to enjoy a much greater return on investment (ROI) whenever you decide to sell! Look for vacation home rentals that are in a prime location and consider the advantages of turnkey properties that are ready to start making money by welcoming guests right away. In this way, a vacation home rental can be a great way to build long-term wealth and can also help ensure you have enough saved to enjoy a secure retirement.
- Tax Write-Offs
You can also write off many of the expenses that are associated with owning a vacation home. According to the IRS tax code, a property is considered a business if you rent it out for more than 14 days each year. Although this means you are supposed to pay taxes on the income it generates, it also means you can write off many of the expenses, including repairs, maintenance and other items associated with the “ordinary and necessary” cost of doing business. Here’s a sample list of what you can write off on vacation home rentals, but be sure you also talk to a financial advisor or accountant who can ensure you maximize deductions:
- Cleaning Costs
- Hosting Fees
- Insurance Premiums
- Lawn Maintenance
- Mortgage Interest
- Occupancy Taxes
- Property Management Fees
- Utility Costs
- You Own a Vacation Home!
Last, but definitely not least, it’s hard to overstate the positive impact that owning a vacation home can have on your quality of life! Although it will be rented out for part of each year, you get to decide how much time you will spend enjoying vacations with loved ones. Whether you decide to take the kids for summer vacation, host your best friend’s bachelorette party or make time to rekindle the romance in your marriage, it will be time (and money) well spent… Especially if you buy in an area you really love!
Would you like to know more about buying a vacation home rental? Post your questions in the comments!