The idea of having a vacation property has become popular since the COVID changed our world. In an attempt to flee their homes, more and more people started thinking about investing in such an endeavor.
The basic premise is simple: you can buy a nice house at the seaside or in the mountains, rent it during the year, and when you have some time, visit it with the family. While this idea seems great, it does require some work.
In this article, we will talk about some major pros and cons of investing in a vacation rental property.
· Pro: Growth of the short-term rental market
According to the official data, village houses and small city properties had a 67% increased occupancy rate in 2020 compared to 2019. Similar goes for major vacation spots and mid-sized cities. However, property rental in large cities experienced a 41% drop.
Most of these properties in rural areas were leased for a short period. The growth of the short-term rental market has to do with the pandemic and people wanting to escape their concrete enclosures.
· Con: You have to manage this property
At first, the idea of having a vacation rental property sounds great, but you quickly realize that this property needs to be maintained. What’s even worse, most investors live far away from this house. To maintain it, they usually have to travel long distances. Or, you will have to hire a person who would do it for you leading to additional costs.
· Pro: You always have a place to escape to
Simply put, you always want to have an alternative place to spend time. As we get closer to retirement, a lot of people like to spend time at their village or seaside house. Even if a person prefers their home city, having a faraway investment property gives you options.
· Con: The expenses can be higher than expected
Like with any other rental property, you are responsible for all the furniture and objects within. Whenever something breaks down (and it will), you will have to repair it or buy a new one. If you bought an older home, there is a good chance you will have major, unexpected repairs.
You may have to take a loan or leverage your home equity to offset your early investment costs. For example, according to All Reverse Mortgage, qualifying seniors can use their primary property to receive monthly payment installments; this can go a long way towards managing your budget.
· Pro: Good way to cut costs
If you and your family have a favorite destination, buying a house at that location can actually save you money. Instead of paying for 5 to 10 trips over the future period, you can simply buy a property and visit it at your leisure. If you calculate the profits from rental, this quickly turns into a great business move.
· Con: Marketing can be a hassle
People often neglect the fact that you need to promote this rental property. This will force you to spend even more time on the house, although this probably wasn’t your initial plan. Furthermore, if you’re bad at marketing, you will need to invest additional time to learn the basics.
· Pro: It is a great way of writing off taxes
Depending on your country or state, rental properties can be used to write off certain expenses. According to US law, any property rented for longer than 14 days is considered a business. You will have to pay taxes for it, but this also means you can write off maintenance costs, management and marketing expenses, mortgage interests, etc.
· Cons: Investor has to consider IRS
Unfortunately, given that this house is regarded as a business, you will have to pay taxes. The list of obligations towards the IRS and local governing bodies represents another difficulty you need to consider. Furthermore, if this property is in another state, you might be forced to drive all the way there to finish certain things face-to-face with the clerks.
· Pro: It will remain for the future generations
Of course, this home will serve not only you but also your kids. Even if the house becomes run down in time, you will still own the land. Alternatively, your children can continue the family business and utilize this rental property to generate passive incomes.
· Con: Owning an investment property is stressful
People have a very wrong perception of investment properties. They see them as vacation homes, which can be rented for profits. Also, they would utilize these properties as family getaways every winter or summer.
The reality is completely different. While you will definitely have a lot of fun with a rental property, it can cause lots of stress. You will have to treat it as a business, which comes with certain expectations and obligations. Ultimately, you will have to decide if it’s even worth it.