When you buy a vacation home and decide to rent it, it's possible to generate new short-term rental income. Buying a vacation home allows you to diversify your income, accumulate wealth, plan your retirement and, of course, take a vacation at no additional cost to you. Some investors weigh a benefit more than others, but once you're clear about why you want to buy a vacation home, you can focus your search and match your investment with your priorities. Retirement can take a few years (or decades), but buying a vacation home now opens up exciting options for you.
Decide if you prefer the flexibility of choosing from a variety of destinations for an annual vacation rather than the reliability of having a vacation home you can always go to. NAR statistics show that most vacation home owners don't rent their properties, but if you can't make mortgage payments without some rental income, it's best to choose a popular destination where demand for short-term housing is high. In general, a “good capitalization rate” (or a good ROI) really varies depending on the vacation destination you're shopping at based on factors such as demand, home prices, and property types. Before making a decision, you should also talk to your mortgage lender about using your vacation home as a short-term rental property.
For frequent tourists, having a home away from home means they have a space of their own when traveling. With a vacation home, you can receive tax benefits for mortgage interest and property taxes if the home is used as a secondary residence. Many vacation home investors decide they want to buy a second property after returning from a great vacation. Recent figures from the National Association of Realtors show an upward trend in the number of second homes purchased for investment purposes, with rental properties outnumbering holiday homes by a large margin.
When looking for places for a vacation home, set a realistic maximum of how much you are willing to offer in a home. There's a lot more to consider when buying a vacation home than just the fact that you like the area. For example, if your vacation home will be in a popular area for retirees, you may need to make your property more accessible. If you are considering owning a vacation home with another person or group of people, make sure to plan ahead for any issues that may arise over the years.
If there seems to be an opportunity to meet demand, a vacation rental home can be a good investment.