Investing in a vacation rental can be a great idea, as it can provide you with a good tax deduction, appreciation in value over time, and the opportunity to create unforgettable memories with your closest family and friends. However, there are also drawbacks to owning a vacation property that you should consider before taking the plunge. Everyone loves a good tax deduction, and buying a well-kept property in a sought-after destination with the amenities that travelers are looking for can be a great way to get one. Your rental income may be able to offset your mortgage and other expenses, and your home can appreciate in value over time, leaving you with a considerable amount of savings or a cherished home to enjoy your retirement.
You could also have a lot to cancel when it comes to paying taxes. When you buy a primary home, you can often get a loan with as little as a 3% down payment. This is not the case with vacation rental properties, however; a second home that is not going to live full time will require a down payment of around 30 to 30%, and your credit score will need to be higher as you will take on more debt. These rules don't apply across the board, so check with your bank for more solid information on how they manage vacation rental properties.
The vacation home you buy for a short-term rental can also serve as a retirement essay. It will give you the opportunity to spend an extended amount of time at the holiday home and decide if the property will be the right retirement home for you. Keep in mind that you may need special insurance coverage, such as homeowners insurance, if you plan to rent your vacation home. Buying a vacation property for short term rental has many benefits, but there are an equal number of drawbacks.
Unless you plan to supervise your vacation home (and if you rent, manage, and book rentals) yourself, which may be close to a full-time job depending on location and demand, it's often best to hire a property management service. Just as you have to be cautious with your personal home, you have to be cautious with your vacation home. If you are buying a vacation property, you should plan to make a 20% down payment to minimize the payment. In addition, while beachfront vacation homes can be incredibly fruitful, the possibility of natural disasters plays a huge role in maintaining and renting them.
Insurance is a must to keep your vacation home safe during those times; just remember that standard homeowners insurance generally doesn't cover flood and hurricane damage, so you may need special policies. Weighing the pros and cons of owning a vacation property is essential before taking the plunge. As with buying a personal residence, vacation home buyers can check websites such as Zillow, RedFin, Realtor, and MLS to research different markets and consider pricing. If the best available rate on a primary residence is 4%, expect to pay 4.5% for a vacation home loan.