Did you know that in the US, the amount of housing stock for second homes is just 5.6%? This means that not very Americans have it on their radar or can’t afford to purchase a second home.
However, you might be in a unique situation where you can afford to do so, and you want to ensure that you spend your money wisely. Not only can you use a second home as a vacation home, but you can also rent it out so you can generate some extra income.
But is owning a vacation rental property actually a wise decision?
In this article, we’ll discuss the pros and cons of owning a vacation rental property so you can determine if it’s a good option for you.
Pro: You’ll Get Tax Benefits
When you own a vacation rental property, you’ll technically become a business owner. What this means is you’ll enjoy all the tax benefits that they get too!
For example, you can write off a lot of expenses involved with your property. This includes things like housekeeping, supplies, and other services you may need to get. In many cases, you’ll be able to deduct your mortgage interest, just like with your first home.
Con: You Have to Pay a Higher Down Payment
Purchasing a first home is always easier than buying a second. With your first, you can pay as little as 3% for a down payment. But with a second, it can be as high as 30%!
In addition, to buy a second home, you’ll need to have a fantastic credit score. This is because a second mortgage means more debt.
Pro: You Have Somewhere to Stay While on Vacation
We all know the troubles that come with staying in a hotel: unclean sheets, no kitchen (or a limited kitchenette), noisy neighbors adjacent to you, and even unsafe premises. When you’re on vacation, you shouldn’t have to worry about things like that.
When you own a vacation rental property, you’ll be able to stay in the comforts of your own home, literally! You own the home, which means you can settle in and feel 100% comfortable. This can take away a lot of the stress that comes with vacationing and enable you to truly focus on enjoying your time away.
Not only that, but you’ll also save yourself some money. You won’t have to pay high hotel prices during popular seasons. And you’ll have a full house at your disposal, meaning you can save even more money by buying groceries and cooking your own meals instead of eating out.
Pro: You’ll Earn Passive Income
Take a look at any vacation rental listings and you’ll realize one thing: people are willing to pay good money to stay at these properties, especially if they’re located in a prime location.
While most vacationers used to stay in hotels, short-stay rentals are becoming more and more popular. This is because it offers them a home away from home, which can be exactly what they need when they’re in a new place.
If you rent out your property while you’re not staying in it yourself, then this is a fantastic opportunity to earn some extra cash.
Con: You’ll Spend Lots of Time and Money on the Property
A home won’t take care of itself. You’ll have to invest both time and money into upkeep and maintenance. Otherwise, your property can quickly fall apart. As a result, this will make your second home unattractive to people and they’ll choose to stay elsewhere.
In addition, if you aren’t diligent about upkeep and maintenance, this means even more costs and trouble in the future. Small problems that could’ve been fixed or prevented early on can fester and become such huge issues that you can’t even rent out your house for weeks or months at a time.
So if you want to keep your rentals steady, you have to be proactive in keeping your property up-to-date and functional.
Con: Investing Is Always a Risk
Buying any type of property always comes with some risk. If you want to sell your second home in the future, then there’s a small chance that it’ll depreciate in value instead of appreciate.
Also, having double the properties means double the risk of natural disasters significantly damaging or even wiping out your homes. For example, having waterfront property means vacationers will certainly flock to your property. But all it’ll take is a bad storm or even a tsunami to destroy your second home.
Pro: You’ll Probably Make Money Selling in the Future
Let’s say you get into old age and can’t be bothered with the upkeep and maintenance that comes with owning a second property. There’s a very good chance your property will grow in value, so when you decide to wash your hands of it, it’ll bring in some profit.
Even if you just break even, or even if you sell for a little less than you bought your rental property for, you’ll still have come out in the green when you factor in all the money you’ve made throughout the years by renting your second home out.
Is Owning a Vacation Rental Property for You?
Now you know some pros and cons of owning a vacation rental property. As you can see, it can be a rewarding experience, plus you can generate some extra income. However, it does come with some hard work, so don’t purchase one unless you’re willing to commit.
If you enjoyed this article and it’s answered your question of “should I buy a vacation rental property,” then make sure you check out our other blog posts for more great info!
