If you’re thinking about investing in real estate, a vacation rental can be a good place to start. This can give you a feel for finding, preparing, and financing an investment property, and can give you a nice place to holiday yourself. There are some perks and some disadvantages to owning a vacation rental, however.
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Pros
You Make Extra Income
The biggest advantage is an obvious one. You make extra money. Airbnb hosts earn, on average, an extra $900 a month, with some hosts with properties in high-demand areas can earn four times that much. There are dozens of rental sites online, that can help you to earn a good profit from your property.
You Have A Property To Get Away Too
Having a vacation rental means you have your own vacation home too. Use the property for things like a girl’s weekend, a family vacation, or a party. Buy your property somewhere you want to go multiple times.
You Can Write Off A Lot Of Your Expenses
If you rent out the property for more than fourteen days, it counts as a business for tax purposes. That means you will have to pay taxes on the income you warn from it, but you will also be able to write off a lot of the expenses that you will run up repairing and maintaining the property.
You can deduct the costs of doing business, including the hosting fees charged by sites like Airbnb.
You can write off:
- Hosting fees
- Cleaning costs
- Supplies like toilet paper
- Occupancy taxes
- Insurance premiums
- Utility costs
- Lawn maintenance
- Property management fees
- Mortgage interest
It can be a good idea to talk to a financial advisor to make sure you’re making use of all the deductions that you can claim.
You Have A Nest Egg Or Future Retirement Home
A vacation home can help you to build long-term wealth and make sure you have some finances for your retirement. You could sell the property and use the cash to cover the costs of living, travel, or healthcare. You could also keep it and use the rental income to fund your retirement, or move into it yourself.
Cons
You Have To Manage The Property
A vacation home isn’t something that you can buy and forget about. It’s a very hands-on investment and takes a lot of work all year round.
At a minimum, you will need to clean, prepare, and restock the property between guests. For popular rentals, this can mean a lot of work, and a lot of wear and tear to keep on top of. You also may need to deal with complaints, disgruntled neighbors, and research into security for your property, such as searching things like ‘are noise level monitoring devices safe for your privacy?’.
You could hire a property management company to deal with the turnover tasks, repairs, maintenance, and other hassles. This isn’t a cheap option though, so weigh the costs against the benefits carefully to decide if this is for you.
You Need To Market It And Find Guests
If you’re going to get guests, you need to list your home on all the top rental platforms, optimize your listings to appeal to the right audience, fill the home with welcoming decor, and price the property fairly for the market. You might need to run discounts and promotions sometimes to fill the property in the off-season.
It’s Not Allowed Everywhere
If you want to invest in a vacation rental, check that you actually can. Some cities, municipalities, and homeowners associations have strict regulations around rentals, especially short-term ones.
Some places ban short-term rentals completely, and others have rules on how often you can rent out a property and how long for. Some require to have certain licenses to run a vacation rental.
Before you buy, check the local policies about rentals with the city’s building committee and the HOA.
You Have Extra Monthly Expenses
If you aren’t careful with your budgeting, your vacation rentals can cause problems with your money. A second property means a second mortgage payment. Depending on the value of your property, this could be enough to cause financial issues on its own.
You also need to budget for other expenses, like utilities, lawn care, and general maintenance. There will be unexpected repairs to pay for too, which can be tough to predict. Make sure you consider the costs and your finances carefully. Make sure the extra costs aren’t going to cause you any financial issues.