Pros and Cons of Owning a Vacation Rental

Location

While you’ve probably heard it before, when it comes to owning a vacation rental, you’ll be in good company, so to speak. In most cases this type of real estate is located in the most desirable location, making for an overall better investment. The more features the better, is waterfront or water view available? Are there added amenities that can increase your potential income? On the other hand, prime real estate equates to the higher end of the market, so you’ll have to initially invest more and be at a higher risk with the investment.

Equity

In general, real estate investments increase in value over time. You’ll enjoy not only the returns from your vacation rental, but you’ll also be building equity. When building a portfolio, you can use this as more leverage or turn the property into cash, when you’re ready to sell.

Higher upfront investments are a drawback of vacation rentals, as a second home, you won’t see the lower down payment requirements that are common to homeownership. In most cases, you’ll need to have a higher than an average credit score to take on the additional debt.

Cash Flow

Who doesn’t want extra income! It goes without saying that owning a vacation rental is an alluring option, as many renters seek out just this type of property. Often, great experiences lead to return visits and even more rentals through word of mouth. Unexpected expenses can certainly put a damper on the bottom line. While you can count on your monthly maintenance and routine repair expenses, it would be wise to set aside funds to cover emergencies. Time is precious and limited when vacationers are occupying your property. You’ll need to act swiftly to keep your tenants happy should something go wrong.

Accounting

Deducting business-related expenses is another plus to owning a vacation rental. Routine costs such as cleaning services or property managers can be written off of your taxes. It’s wise to have a professional tax advisor for reliable advice on what records to keep each year. Now, be aware from the start that you’ll have to pay more taxes and other fees associated with the business.

Free Time

How exciting! Naturally, you could plan on spending your retirement years in the property you select as your vacation rental. You’ll have the dream vacation home you selected at your disposal. Just remember, your highest rates and peak booking dates will likely be during the prime you’d like to vacation or special dates on the calendar, such as holidays. For this reason, don’t count on spending these times on the property, unless you’re willing to lose income. Upkeep and maintenance of the property can be costly, especially if all of the services are hired out for each turn over of the unit. Do-it-yourselfers often find their vacation property nibbling away in the free time they would rather be enjoying.