Editor’s Note: This post was originally published in 2019 and has been updated for accuracy and comprehensiveness.
Buying a second home and using it as a vacation rental property is a big decision. And sometimes making big decisions, like this one, requires sitting down, doing the research, and making a pro/con list of owning a vacation rental to help guide you.
The good news is that we’ve done the hard work for you. We’re experts in vacation rentals and know all of the pros and cons for owners and potential owners like you. The only thing you have to do now is read through our list below and then make your decision.
Pro: You’ll earn extra income.
This is most likely the main reason you’re considering owning a vacation rental property in the first place. Who doesn’t want extra income plus a vacation home they can retreat to whenever they need to get away? Your rental income will depend on which city you buy in, what neighborhood, the type of home you have, and much more. We recommend checking out some listings on Airbnb and VRBO in your desired town. Look at the nightly rate that other owners are charging and see how the rates and availability change depending on peak season and offseason.
Most recently, as the travel industry has faced a surge of vacation cancellations due to COVID-19, many travelers have opted to stay in vacation rentals over hotels due to their ability to easily social distance. This could mean a huge bounceback for the home-sharing industry, as well as a more permanent shift in accommodation preferences as travel begins to resume again.
Con: There may be some unexpected expenses.
Just like at your primary residence, things in a vacation home can break or just stop working at any time. When this happens, you as the owner are responsible for paying to fix it. You can plan for certain costs, like utilities, restocking, taxes, and regular maintenance, but you can’t plan for your air conditioner breaking or a pipe bursting. We recommend setting aside a certain amount of money each year, like 1% of the home’s purchase price, for unexpected repairs and maintenance.
Pro: The home may increase in value.
When you buy a home, the hope is that will appreciate in value so you can make more money off it when you sell. A vacation rental home is no different. Your property will hopefully increase in value year over year. This is true especially if you buy in a high-demand area. Before making a purchase, take a look at past and current trends in the market you’re hoping to buy in.
Con: Your down payment might be higher than you think.
If you’re buying a primary residence, you can sometimes get a loan with a 3-5% down payment. The rules are different for vacation rental properties. When you’re buying a second home that you don’t plan to live in full time, expect to put down 20-30%. Your credit score requirements also might be higher for this vacation home because you’ll be taking on more debt.
Pros: You can deduct business-related expenses.
Don’t forget about tax deductions! This is a business for you, meaning if you’re paying taxes based on your rental income, you can deduct any business-related expenses. Deductions you might be able to claim include housekeeping, restocking, and the cost of your property management company. Just remember to keep each and every receipt. We recommend getting a business credit card to pay for any expenses related to your rental so you can see everything you paid for in one place.
You also might be able to deduct your mortgage interest, property taxes, and insurance. To figure out exactly which deductions you can claim each year, talk to a tax professional in your area.
Con: You’ll have to pay more taxes and fees.
You won’t have to pay taxes on rental income if you rent your home out for less than 14 days each year. But if you’re renting out your property for more than 14 days, you will need to pay federal taxes on that additional income. Other taxes you’ll pay include state, local, and property taxes. Depending on your local tax laws, you may need to get a business license, pay sales tax, or hotel taxes too. When it comes to fees, you’ll most likely need to pay a booking fee for the websites you use to market your home.
Pro: You’ll have a vacation home to use whenever you want
Do you need a vacation? Well when you own a rental property, you always have a place you can go to. To maximize your revenue, we recommend heading to your vacation home in the off-season. You’ll also have a place that friends and family can stay in (whether you make them pay the full price, a reduced rate, or nothing is up to you). And while retirement may be a long way off for you, a vacation home is the perfect place to retire to when you decide that you’re ready for it.
Con: The upkeep can be time-consuming.
There is a lot of upkeep involved with owning a vacation rental property. You’ll have to keep up with regular maintenance and repairs, but you’ll also have a lot to do for each guest’s stay. This includes housekeeping (whether you hire someone or do it yourself), restocking, and answering the guest’s questions and concerns.
If you buy a vacation rental property in a different town than your primary residence, you also need to think about the time and costs for traveling back and forth between your two homes when you need to take care of something at the rental property.
There’s also the marketing aspect. You’ll need to create listings for sites across the internet, like HomeAway/VRBO, Airbnb, and Expedia. With these listings, owners should always be answering potential guest’s questions, responding to reviews, and updating the nightly rate/calendar for their property.
Rental properties are easier to manage with help.
If all of the upkeep above sounds like a lot, there are people who can help – which is a major pro. Vacation rental property managers like TurnKey can do everything for you, so you don’t have to spend every spare hour dealing with your rental home.
When it comes to marketing, a great property manager will expertly craft a listing on all of the major sites travelers use. They’ll use professional photography and an expert copywriter to make sure your home stands out among the thousands of others that might come up in a search.
Another way a good property manager will be able to help you manage your rental is by being there for guests. For example, TurnKey has a guest team that’s staffed 24/7 to quickly answer any question a guest might have. You can also rely on your property manager to handle housekeeping and regular maintenance. TurnKey will take care of the housekeeping and any minor maintenance tasks like changing light bulbs, replacing batteries, etc. to make sure your home is always perfect for guests – we even give cleaning companies a checklist to follow while they’re housekeeping, and we always do photo comparisons to ensure your home is staged correctly. Plus, a property manager will walk through the rental before any guests arrive.
Learn more about owning a vacation rental home
If you still have questions about what it’s like to be a property owner for a vacation home, schedule a consultation with us. Our team of experts can talk to you about the life of a rental property owner based on our years of experience managing over 4,000 homes.