Buying a vacation rental property is a great way to make money and create memories. It requires in-depth knowledge of local markets and projected revenues, and it's important to remember that unlike a traditional buy-and-hold property, buying a vacation rental means you're adding a property to your portfolio that will have vacancies all year round. A second home has all the costs of your first home and often more, but without the easy cancellations of the IRS. To help you decide if you should finance the purchase with a mortgage or pay in cash, use a mortgage calculator to research lender interest rates in the area where your vacation property is located.
Then, review your financial data to see if it makes more sense to apply for a mortgage or pay cash. If active management doesn't appeal to you or your AGI is too high, spend more time in the cabin and turn it into a mixed-use property rather than an investment property. This means that taxes change with the change of designation, mainly because passive losses cannot be used. But you'll be able to claim a percentage of mortgage interest and property taxes as deductions from your income tax. Owning a vacation rental requires your ongoing attention.
For each guest, you need to make sure it's clean and everything is in working order. In addition, because the chances of wear and tear are greater, it may require more maintenance than a traditional real estate investment. One of the biggest benefits of owning a vacation rental property is that you can use it for business and pleasure. Visit your vacation home to spend a little time for yourself, get away for a romantic weekend, or organize lively events for family and friends. Typically, guests will book a vacation rental stay for a few days to a week, although some trips may last a month or longer.
The idea is to have a “home base” for your trip, without having to pay hotel prices. Overall, these properties come fully furnished and offer guests almost everything they would need, while maintaining a more private and homely atmosphere than a traditional hotel stay. If you rent the vacation property at fair market value for more than 14 days a year, the IRS considers you a landlord. In that case, your rental costs can be deducted proportionately to the use of the property as a short-term rental. The amount you can deduct is determined by dividing the number of days you rented the property by the combined total of personal use and rental days.
For example, if you rent your property 100 days out of the year (75 for rentals and 25 for personal use), you can deduct 75% of eligible expenses. Deductions cannot exceed the total amount of rental income, which is reported in Schedule E of your 1040 along with rent-related expenses. You won't have to file Schedule C or pay taxes on self-employment unless you provide important hotel-like services for guests, such as cleaning or breakfast. Is it legal to rent your home to vacationers using online rental services such as Airbnb or VRBO? It depends on several factors, such as where your home is located, what type of house is yours, and how long you rent it. And if you rent (don't own) your home, lease or rental restrictions are also an issue. Unfortunately, legal restrictions on short-term rentals are not uniform and can be confusing.
In addition, short-term rental websites currently offer minimal help to potential hosts to understand or comply with these laws. Creating a beautiful space for guests is one of the easiest ways to make money with your vacation rental. Once you've identified a property in a location that has sufficient demand for vacation rentals and host-friendly regulations, you can begin to calculate its potential return on investment and identify potential expenses. Before you even consider buying a vacation rental property, there are a few things you should find out. Depending on the location, your vacation property could also become your retirement home in the future, making it a valuable fixed asset to your portfolio. Best of all, you can link your vacation rental website within your listing service profiles and even use it in marketing channels such as YouTube videos and Facebook posts. Now that you know the basics of managing vacation rental properties, you need to understand the finer details of this industry.
Vacation rental software is a type of PropTech (short for real estate technology) tool that helps hosts and property managers manage their vacation rentals conveniently through a single platform. According to a Vacasa consumer survey, 92% of travelers were satisfied with their vacation rental experience during the pandemic (citing benefits such as cleanliness and privacy), and 52% would choose a vacation home over a hotel in the future. As mentioned above, one of the main advantages of investing in a vacation rental property is that you can change your prices more frequently in response to seasonality and other factors. As with any investment, there are several downsides, including costs, obstacles, and drawbacks to vacation rental properties. By following this route, you will request information from local authorities about zoning laws related to short-term rentals before investing in any real estate. Overall, owning a vacation rental property can be an excellent way to make money while creating memories with family and friends. With careful research into local markets and projected revenues as well as understanding legal restrictions on short-term rentals in certain areas, investing in this type of real estate can be both profitable and enjoyable.