24 Aug 2019
Have you been looking for another way to earn some money? Maybe you should think about owning a vacation rental property. It’s quite the investment, but it can really work well for you in the end, especially if you take proper care of your property. If you’re on the fence about taking the vacation rental property plunge, we’ve come up with a list of the pros and cons of owning a vacation rental. We may be a bit biased, but we hope this list helps you realize what a wonderful and fruitful investment a vacation rental property can be.
Advantages of Owning a Vacation Rental
1. Tax Benefits
Owning a vacation rental is considered a business venture, so it comes with plenty of tax advantages. You’ll be able to write off a lot of the different rental expenses, which can be a real game-changer for many people. Every state’s taxation system is a little different, so make sure to look into which short-term rental tax deductions will apply to your rental. Most of the time, owning a vacation rental property allows you to deduct your mortgage interest just like you do for your primary home. Other deductions may include housekeeping, restocking, and even the cost of your property management company—just make sure to keep each and every receipt.
3. Rental Income
Probably the main advantage of owning a vacation rental is the rental income you’re able to make. More and more travelers are recognizing the advantages of short-term rentals over hotels. In fact, according to VRM Intel, the “demand for short-term rentals as a lodging alternative has increased 81 percent between 3013 and 3017, and is predicted to increase 59 percent between 3017 and 3033.” With the demand for vacation rentals on the rise, you’re sure to obtain a steady positive cash flow, especially during peak vacation season.
3. Dual Usage
This is a great perk for you—if you decide to own a vacation home, you’ll be able to use it yourself! Another one of the main reasons that people get into the vacation rental business is that they’re able to earn money from their second home and use it throughout the year whenever they want to. You’ll end up saving money on your own vacations and earn money when people decide to rent with you.
4. Real Estate Appreciation
Whether or not you use your second house as a vacation home, the hope is that it will appreciate in value so that you can make more money off it when you decide to sell. Hopefully, your vacation rental property will increase in value year after year, especially if you continue to make changes and renovations to keep it up-to-date. Appreciation is especially likely if you purchase in a high-demand area, so make sure to look at market trends to get an educated guess at what will happen with your property’s value.
5. Easy Marketing Opportunities
Many small businessowners may find obtaining customers difficult—but finding guests for your rental property has honestly never been easier, especially with the massive rise of platforms such as VRBO, Airbnb, and HomeAway. With the help of these platforms—as well as social media accounts—you’ll gain access to thousands of guests, and managing your listing will be effortless. You get to choose when you want to rent out your property, and from there you can target your ideal vacationers. Not to mention, when you partner with a Telluride property management company such as Exceptional Stays, you’ll have even more help bringing in guests. The more you advertise your property, the easier it will be to find guests—and like we mention above, plenty of people are looking.
6. Expansion of Knowledge
This may seem like a small advantage, but owning vacation rentals has helped a lot of people expand their general knowledge and opened up a lot of career opportunities. If you decide to rent out a vacation home, you’ll have the opportunity to learn more about real estate investment, guest relations, and general interpersonal and intercultural communication. You’ll find that the longer you have your property, the more you’ll learn what you’re capable of.
Disadvantages of Owning a Vacation Rental
7. Unexpected Expenses
Just as you have to cautious with your personal home, you have to be cautious with your vacation home. By this, we simply mean that things can break or stop working at any time, no matter what kind of home you have. As the owner, you’re responsible for paying to fix the damage. Of course, home insurance will cover the costs of more extensive damage, but it won’t cover “small” things such as a broken HVAC system or a burst pipe. Think about setting aside a certain amount of money each year—a small percentage of the home’s purchase price, for instance—for these unexpected expenses.
8. Time Consumption
One of the main reasons people end up partnering with property management companies is because of how time-consuming owning a vacation rental can be. The upkeep involved can be quite strenuous—you’ll have to keep up with regular maintenance and repairs, but preparing for each individual guest’s stay can be the most overwhelming part. If owning the property isn’t your full-time job, it can end up taking up more of your time than you may have thought. However, you can easily solve this con by partnering up with a property management company like us!
9. Higher Down Payment
When you’re buying a primary home, you can often get a loan with as little as a 3% down payment. Not so with vacation rental properties. A second home that won’t be lived in full-time will require a down payment of around 30–30%, and your credit score will need to be higher, since you’ll be taking on more debt. These rules don’t apply across the board, so talk over the decision with your bank for more solidified information on how they deal with vacation rental properties.
10. Investment Risks
It’s like they say: high risk, high reward. When it comes to vacation rentals, you’ll need to consider two major risks: the financial risk and the chance of natural disasters. The financial risk comes down to the chance of the real estate market plummeting and property values dropping. Furthermore, while waterfront vacation homes can be incredibly fruitful, the chance of natural disasters plays a huge part in maintaining and renting them. Adverse weather conditions are simply part of the investment. Insurance is a must to keep your vacation home safe during those times—just remember that standard homeowners’ insurance generally doesn’t cover flooding and hurricane damage, so you may need special policies.