If you’re interested in real estate investing, a vacation rental can be a great place to start. Not only can it help you get a feel for finding, prepping, and financing an investment property, but it can also give you a nice place for a little R&R yourself. And what busy investor doesn’t want that?
Still, owning a vacation property isn’t all sunshine and rainbows -- at least not 24/7. If you’re thinking of buying a vacation home to rent out for extra cash, consider the full range of pros and cons before diving in.
The perks of owning a vacation rental
First up: The good stuff. There are obviously many advantages to owning a vacation rental, or millions of people wouldn’t do it. It’s why platforms like Airbnb and VRBO have grown exponentially over the last decade. It’s probably why you’re reading this article in the first place.
Let’s look at a few of those perks now:
You make extra income
The biggest perk of owning a vacation property is simple: You make money. Airbnb hosts alone earn upwards of $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. Dozens of other vacation rental sites exist, opening the door to even more earnings if you play your cards right.
Here are some of the best vacation rental platforms you might want to consider listing on:
You have your own spot to get away
Having a vacation rental means you get to vacation there, too. Use the property for your friend’s bachelor party, host a girls’ weekend, take your kids for a summer vacation, or host the annual family reunion. (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. That means you have to pay taxes on the income it brings in. But it also lets you write off many of the expenses you’ll incur 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 good list of items you might consider writing off as a rental investor:
- 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.