Many beginner real estate investors are wondering how to start investing in real estate and, most importantly, how to make money from real estate. Consequently, a common question occurs: “Should I buy a vacation home as my first real estate investment?”
The idea of investing in vacation home rentals seems great, not only to the beginner real estate investor, but to experienced real estate investors as well. This is due to the fact that financing investment properties such as vacation homes is a twofer.
First of all, you can get a second home where you can spend the holiday. The latter can also lead to tax deductions, but more about that in a while. The other point is that you can submit your second home as one of the short term rental properties. This way you will start making money in real estate.
Things to Keep in Mind Before Buying a Vacation Rental Property
Are you a beginner real estate investor wondering: “Should I buy a vacation home as the first of my investment properties?” Then this blog is for you! We will review how to buy a vacation home and all the major things you need to know about vacation home rentals. By the end of the post, you’ll be equipped to answer the question “Should I buy a vacation home as my first real estate investment?”
#1 Should I Buy a Vacation Home: Vacation Home Rentals
When asking yourself the question: “Should I buy a vacation home?”, you first need to understand what a vacation home actually is. Such investment properties are typically fully furnished rentals. They are typically rented out to tenants on the basis of short term accommodation. Income properties of the kind are situated in tourists’ resorts. Such might be ski/ snowboard areas as well as beach locations.
The biggest benefit of these rental properties is that they can be used by the real estate investors as a second home. That means that while unoccupied, the property can be used by the owner. This way you will have a vacation home which pays for itself and later, generates profit. Isn’t that great, huh?
As a beginner real estate investor you are also probably wondering how to buy a vacation home. Well, let’s find out together.
Related: Should I Buy a Vacation Home in Sacramento, CA?
#2 Should I Buy a Vacation Home: How to Buy a Vacation Home
Before answering your question: “Should I buy a vacation home as my first real estate investment?”, think of possible ways to finance the property. As beginners in the field of real estate often do not have enough financial assets to purchase a property, there are several methods you can consider.
For instance, think about a mortgage loan. You can also take a loan from family and friends in the case that the sum you need is not too big. Further, you can enter a partnership while buying the property. This will tremendously reduce the amount of money you need to pay yourself. Financing your property is a crucial step on the way to your success, so do not neglect it.
If you want to review the financing methods in detail, check out “Real Estate Investing for Beginners: Methods of Financing Rental Property.”
#3 Should I Buy a Vacation Home: Tax Deductions and Tax Advantages
While having the dilemma: “Should I buy a vacation home or not?”, there are a few things regarding taxes you need to know.
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Tax Deductions
The name speaks for itself. A tax deduction is a method of reducing the income that is subject to a tax. When buying investment properties such as vacation homes, there is a way to do this. Imagine that your annual income is $100,000. However, you pay $10,000 for mortgage interest rates.
With tax deductions, the taxable income will fall down to $90,000. However, this is only the case if you are the only one using the vacation home. Tax deductions vary depending on how often you use the property and how often it is rented to others. Anyway, this benefit is worth striving for.
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Tax Advantages
Tax advantages represent a bonus which is applicable to different types of investments. This method is usually established by the government to stimulate investors putting money into something that is in the public’s interest.
Luckily, financing investment properties is one of the ways to receive tax advantages. Consider if this applies to you in case you invest in vacation rental properties in a specific area, for example.
#4 Should I Buy a Vacation Home: Real Estate Market Analysis and Investment Property Analysis
How to start investing in real estate? How to make money from real estate? Should I buy a vacation home? Conduct a research and you will get all the answers you need. What type of research? Well, real estate market analysis and investment property analysis are what you should begin with.
Remember, you do not need a real estate agent to help you here. You can learn how to start investing in real estate and how to make money from real estate on your own!
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Real Estate Market Analysis
Real estate market analysis helps you in getting a better view of the local housing market. This way you can explore the current state of the market, find the best places to invest and start making money in real estate.
Additionally, you can understand the market value of a certain property and negotiate with the property buyer for a better deal. If you are interested in learning more about this topic, be sure to read “How to Perform a Real Estate Market Analysis.”
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Investment Property Analysis
Investment property analysis, on the other hand, deals more with the income properties themselves. Such analysis takes into consideration various real estate metrics in order to help you in finding and financing investment properties which generate positive cash flow.
As you can imagine, however, conducting such analysis requires a lot of time, effort, and knowledge. Luckily, there is an easier way to achieve the same, even faster and more accurate results. This is through using the rental property calculator.
#5 Should I Buy a Vacation Home: The Rental Property Calculator
The rental property calculator is the tool which can do the job of a real estate agent faster and at a lower cost. Additionally, the tool has a bigger dataset compared to the one of a real estate agent. Using it is the way of making money in real estate. Why is that so? Mashvisor’s rental property calculator can compare multiple income properties in no time.
In addition, it will show detailed information about each property and its surroundings. Moreover, the tool will reveal the optimal rental strategy for your chosen investment. As you can imagine, this is a very important feature in residential real estate investing.
If you are willing to explore this tool further, please visit “Mashvisor’s Rental Property Calculator: A Guide for Beginner Real Estate Investors.”
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.