Real estate investing can take many forms. Buying your own home also counts as investing in real estate because you always have the option to sell it in a few years for a major financial profit due to real estate appreciation. If buying a home is a real estate investment, then so must be buying a second home as well. While you will most probably not rent out your primary home because you need a place to live in, renting out your second home is a totally different story. It is actually a very plausible idea with high potential for profit. However, there still remains the question whether buying a second home for the sole purpose of renting it out as a rental property is a good idea. This article aims to show real estate investors how and why buying a second home to rent out could be the smartest real estate investment decision. If you are interested in this option of becoming a real estate investor, keep reading.
Buying a second home to rent out will pay for its own mortgage payments
One of the biggest downsides of buying any real estate property – whether your own home or an investment property – is the price of it and the need to finance the purchase. Otherwise, we would all be in possession of hundreds or even thousands of real estate properties. Now, the great thing about rental properties – unlike homes – is that you use a portion of the rental income (the rent you collect from tenants) to pay for the monthly mortgage payments. It is the same with buying a second home to use as a rental property. Virtually, you will be able to use the rental income that you generate to pay for your home.
Related: Is Taking a Mortgage for Rental Property a Good Idea?
Buying a second home to rent out will provide you with a free place for your vacations
After all, buying a second home is buying a second home, regardless of the purpose. Even if you decide to rent it out, you don’t have to do that the traditional way, you can try out Airbnb or another form of a short-term rental strategy. In this way you can still use your second home as a vacation home. Just imagine that – having a cozy, homey place to spend your vacations in for free, which is paying for its mortgage the rest of the year, when you reside in your primary home. What more can you ask for as a real estate investor looking for options to make money and live comfortably?!
Buying a second home to rent out will secure you tax benefits
Similar to owning a rental property and to possessing a home, buying a second home to rent out provides you with options to benefit from tax deductions. However, because in this case your real estate property is both a home and a rental property, things are a bit more complicated. If you rent out your second home for up to 14 days a year, you don’t have to report your rental income to the IRS, regardless of how large it might be, so you enjoy a tax-free rental income. If, however, you rent out your second home for more than 14 days a year but still spend some time in it, you have to report the rental income but get to deduct some of the rental expenses including the mortgage interest, the property tax, the insurance premium, utility bills, etc. You have to learn how to calculate the proportions though. That is to say, while calculations might get a bit confusing, you are still eligible for tax deductions when buying a second home to rent out.
Related: All You Need to Know About Rental Income Tax
Buying a second home to rent out will teach you how to be a real estate investor and a landlord
Some people were just born to be real estate investors, others were born to be landlords, while still others were born to be both! Maybe you are not one of those people, or at least you don’t know whether you are. Buying a second home to rent out gives you the opportunity to try out if you could function as a real estate investor and a landlord. Even if after a few months or years you decide that real estate investing is not the right career path or business endeavor for you, you will still have the major advantage of owning a second home as a result of your trial efforts. If you don’t want to have a second home, then you can just sell your real estate property and make money from the real estate appreciation.
Buying a second home to rent out will let you make money
Well, before we wrap up, let’s not forget the main reason why you should totally be buying a second home to rent out: to make money as a real estate investor. After you cover the mortgage payments, pay property taxes, and provide for all other expenses associated with owning and managing a rental property, you should ideally have some rental income left for your pocket or bank account, i.e., you should have positive cash flow. When buying a second home to rent out, you should perform careful investment property analysis to make sure that you end up with positive cash flow. In this case, a second home is very much the same as an investment property – you want to make money from it rather than lose money. To get the best deal in a primary vacation location, you can opt to use Mashvisor, which will provide you with access to thousands of real estate properties – equally good for second homes and for investment properties – across the US. The property search engine will let you narrow down your choices based on your own criteria, while the investment property calculator, which breaks down all figures into traditional and Airbnb rental strategy and which uses traditional and predictive analytics as well as real estate comps, will help you greatly in computing how much you can expect to make from your new real estate property.
Related: What Are the Best Ways to Make Money in Real Estate?
Maybe the thought of buying a second home to rent out has never before even crossed your mind. That’s OK, now it has. Moreover, now you know why and how this could be a great way to make money through real estate while also enjoying the comfort of your own home during your vacations. The journey of a real estate investor has to start somewhere, and yours could easily start with the purchase of a second home.