Perks of Buying a Vacation Home

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You make extra income

You make money. Airbnb hosts alone make up to  $900 per month on average, while hosts in the most in-demand cities can make four times that or more. And that’s only on one platform.

You have your own spot to get away

It’s yours to also enjoy! Use it to gather with friends and family. (A quick pro tip: Buy in an area you’ll want to visit more than once.)

You can write off a lot of your expenses.

If you rent the home out for more than 14 days, it’s considered a business for tax purposes. You’ll have to pay taxes on the income it brings in. But it also lets you write off many of the expenses you’ll have to repair and maintain the property.

You can deduct almost any “ordinary and necessary” cost of doing business. You can even write off hosting fees charged by Airbnb and other platforms.

Here’s a list of items you can write off:

  • Hosting fees.
  • Cleaning costs.
  • Supplies (toilet paper, K-cups, and so on).
  • Occupancy taxes.
  • Insurance premiums.
  • Utility costs.
  • Lawn maintenance.
  • Property management fees.
  • Mortgage interest.

This isn’t an exhaustive list, so talk to a financial advisor or accountant to maximize your deductions.

You have a new nest egg — or even a future retirement home

A vacation home can be a great way to build long-term wealth and ensure you have healthy finances upon retirement. Sell it and use the cash to cover your future costs of living, travel, healthcare, and more. Or keep it and enjoy the relaxing retirement you’ve always imagined. Either way, you win.

What’s not so great about vacation rental investments

As with everything, there are cons, and we promised you cons.

Here are a few disadvantages to consider:

You have to manage the property

At the very least, you’ll have to clean, prep, and restock the property between every guest. If your property gets popular, that could mean a serious amount of work. (Plus, all the foot traffic will probably result in more wear and tear).

You could hire a professional property management company to deal with the turnover tasks, but note that they can be pricey. According to industry averages, short-term rental property managers generally charge 15% to 40% of your income.

You need to market it and find guests

You’ll need to:

  • list your home on all the top rental platforms,
  • optimize your listings to appeal to the right audience,
  • fill the home with comfortable and on-trend furnishings and decor, and
  • most importantly, price the property just right for the market it’s in.

You might even need to run occasional discounts and promotions in order to fill the home.

It’s not allowed everywhere

Many cities, municipalities, and homeowners associations (HOAs) have strict regulations around rentals — particularly the short-term kind.

Some places ban short-term rental activity altogether, while others have rules for how long or how often a property can be rented out. Some also require certain licenses in order to operate a rental in the area.

You have an extra monthly payment (and other expenses, too)

A vacation home also means extra mortgage payment. Depending on how expensive the property is, that alone could cause financial stress in your household.

There are also other expenses to consider:utilities, lawn care, and general maintenance. You’ll probably have unexpected repairs, too.

You’ll probably pay more to finance the property

One of the biggest downsides to owning an investment property is that you pay more to finance itInvestment property loans typically come with higher interest rates than other mortgage options. That means a higher monthly payment and more interest paid over the life of the loan.

For more ideas, read our recent article Governor Newsom Orders Another Shutdown in LA Due to Surge in COVID-19 Cases

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