Reasons To Invest In Vacation Rental Real Estate
Have you ever thought about investing in a vacation home to use a short-term rental? Let us share some insight on why real estate investors should consider this avenue as they start their first real estate investments.
It can be intimidating to dive headfirst into the world of real estate investment, but buying a vacation rental home is one avenue that’s gaining a lot of popularity. We think it might just be the best way to enter the real estate business and become a property investor.
There are many benefits to buying a vacation rental and we have put together a list of the top reasons that we think you should consider this as your first step in real estate investment.
1. Generating Rental Income
One of the major advantages of real estate investing in general, and investing in rental properties in particular, is the fact that you gain a source of steady income outside of your 9-5 job.
The idea is that you will be renting out your second home to guests when you aren’t using it. You’ll be making money without having to necessarily buy an “investment” property. After all, your vacation home is your second home. It just happens to make money on the side.
When you buy a vacation home and use it as a short-term rental, the money you make from bookings actually helps you pay the mortgage and other expenses (property tax, insurance, maintenance, and repairs) for the place where you spend your vacations.
2. Owning A Dual-Purpose Property
If you’re a first-time real estate investor, you are probably considering all the options and thinking about what’s best for you.
Buying a vacation rental home has one clear advantage: It can serve dual purposes. You can use it as a second home and spend your own vacations there with your family, and then rent it out to guests the rest of the year.
Buying an investment property for the sole purpose of renting it out long-term does not give you this option.
3. Earning Tax Deductions
Similar to your primary home or an investment property, a second home also provides tax deductions. These apply to mortgage payments, property tax, rental income, insurance premiums, utilities, and other rental expenses.
However, the situation with a vacation rental can get somewhat complicated depending on the number of days you live in your property and the number of days you rent it out to guests. So, if you decide to buy a vacation rental, we recommend that you work with a professional accountant and/or a real estate attorney to assure that you are taking maximum advantage of tax deductions without breaking any tax laws.
3. Building Value Thorough Appreciation
In addition to making money in the short run, a vacation rental home also makes money – potentially a lot – in the long term.
A second home is like any real estate property, which generally appreciates in value over time. When you are ready to sell your vacation rental property, you can usually sell it at a higher price and cash in on the profit. The best part is that you don’t have to do anything to enjoy this benefit. Natural real estate appreciation will take care of it if the property is maintained.
If you want to make even more money when selling your property, you can make modifications and improvements to push up the market value of your vacation rental (known as forced appreciation).
5. Taking Less Risk
Investing in stocks, bonds or precious metals has a higher risk in investment than real estate.
Investing in vacation rental exposes you to lower risk than other types of real estate investment. First, vacation homes are in top tourist destinations, so you can attract lots of guests, reach high occupancy rates, and charge a high nightly rate.
The combined effect is high rental income. And rental income is how investors make money from their rental properties.
One way to reduce your risk even further is to choose a location and a property that works as either a traditional, long-term rental or as a short-term rental. If you find that you have a low occupancy rate, low rental income, and negative cash flow, you have the option to switch strategies and become a traditional landlord.
6. Using Property Management
Self-management is a major concern for inexperienced investors, and it can potentially turn into a real nightmare for first-time vacation rental owners. Imagine having to clean your property, change the sheets, wash the towels, and refill the toiletries between each guest – sometimes multiple times a week – all the while working your 9-to-5 job.
Most owners don’t have time for that. Instead of handling it themselves, they’re hiring property managers or vacation rental management services to take over those time-consuming duties. Even though a manager will be an expense to you, in the long run a good manager will save you money and earn more bookings than you could do alone.
Let's Get Started
Investing in a vacation rental home is an easy entry point to real estate investment that provides endless opportunities to learn and carries lower risk than other options. But if you are a beginner real estate investor, you might be wondering how to go about the whole process of buying a vacation home as an investment property.
Give us a call to help you get started. We can help you buy the right investment and manage your investment as well.