Waking up, going to work, meeting up with friends, enjoying a nice meal with your loved ones is pretty much everything a person could ask for, right? Maybe for some, that’s more than enough but for others having a quick getaway or taking time off from their busy lives with a nice vacation is exactly what they’re looking for. If you’re that type of person who wouldn’t mind spending time on the beach to get your mind off your daily routines then investing in vacation home rentals is the investment for you.
Some will argue with me and say that vacation home rentals are too complicated and waste more of your time and money than just renting out for the long term. I’m not going to lie, there are pros and cons to every investment and vacation home rentals are no different. Let’s take a look at the ups and downs and then you can decide whether or not it’s the best type of investment for you.
Related: Why You Should Invest in Vacation Home Rentals in 2018
The pros of investing in vacation home rentals
#1: The glory of tax benefits
The ability to claim tax breaks is one great reason why you should invest in vacation home rentals. Each area differs in terms of its tax advantages when it comes to rental expenses. Therefore, be sure to check out the taxation system in your state and find out which tax deduction applies to you. The tax break usually depends on the amount of time the property is being rented out and the number of days the property is begin used. So carefully establish the amount of time the property is rented out as opposed to the amount of time it is used personally.
#2: Real estate appreciation
Another great advantage to investing in vacation home rentals is appreciation. So long as you own the investment property, the value of the property will rise. When the time comes to sell the property, you will be able to make money. So in short, the longer you keep the property, the more you will be able to sell it for.
Related: Real Estate Investing for Positive Cash Flow vs. Appreciation
#3: Rental income
Vacation home rentals are gradually making their way as the best real estate investments. Why? Well for one, their ability to generate a great Airbnb rental income. Aside from having a steady income, you could use this rental income to repay debts or mortgage on your second home. These types of investment are a great way to make money in real estate. An important thing to keep in mind when owning vacation home rentals is the amount of rent you should charge to potential Airbnb guests. You want to pick a price that will give you a good return on investment but at the same time, won’t leave your property vacant.
The cons of investing in vacation home rentals
#1: There are holding costs to consider
The problem with vacation home rentals is that they are seasonal, meaning that you might not be able to find tenants to occupy your property all year round. When you can’t find a tenant, you will have to pay the mortgage, insurance costs and all the maintenance fees. You will end up paying from your pocket if you don’t manage to turn enough profit to cover this vacancy period that your property is going through.
#2: Higher renovation and repair costs
Short-term rentals like vacation home rentals require more renovation and repair costs than long-term rentals. Tenants tend to treat the property with less respect than they would for a long-term rental property because there is no sense of ownership or obligation. It’s going to be harder to keep an eye on your property especially if you live far away. Also, get ready to upgrade and repair because most travelers expect the latest appliances and furnishings when they are on vacation, so that’s more on your plate.
Related: 6 Rental Renovation Tips to Know Before Spending Any Money
#3: Higher risks
It’s only common sense for many to assume that vacation home rentals hold higher risks than other investments. Vacation home rentals need more precautions. For example, if you are investing in a beach house, you should expect for a natural disaster to occur. Therefore, it’s only logical to take extra precautions and get good insurance to be able to cover up for any losses that might occur.
I tried my best to point out the good and bad in vacation home rentals without scaring you off. If you feel like this type of investment is worth your while then continue reading as I quickly mention the things you should consider before investing in vacation home rentals.
Vacation home rentals checklist:
- Is it easily reachable or do you need to ride a boat to cross the river or climb up a rocky mountain?
- Is this really a location you’d like to come back to year after year? Is it a location that will keep attracting tenants?
- Right now it’s quiet and peaceful, but will it stay that way if the road gets widened to accommodate a new resort, or if a tower is built nearby?
- If the property increases in value, what additional tax implications could you face because it’s not your primary residence?
- How much is the estimated amount of additional expenses? Will you be able to manage to pay for all the expenses when the property is not occupied?
- Is it far away from where you live? Will you self-manage the property or hire someone to look after it while you are away?
Related: How to Make Money with Vacation Home Rentals
Always ask yourself questions that you feel will help you make a smarter investment decision. Put yourself in all the scenarios that could possibly happen and if you can find a way out of each situation without losing more than you put in then you are on the right path to becoming a successful real estate investor. Whether or not it is worth dipping your toes into this particular real estate investment niche is debatable and depends largely on your personal and financial abilities and tolerance for risk. Be sure to check out Mashvisor for the latest real estate investing tips and strategies. Also, feel free to leave any comments below or share any personal experiences you may have had with short-term rentals.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.