The vacation rental market is expected to be valued at $113.9 billion by 2027. This accounts for an annual growth rate of 3.4%.
If you’ve been considering investing in a vacation rental property, now might be the best time. If you can afford the initial investment and ongoing upkeep, you can benefit greatly from the investment. But, before taking the dive, you need to make sure an investment rental property is the right move for you.
Keep reading to discover the pros and cons of owning a vacation rental.
Pro: Rental Income
The biggest benefit of owning a vacation rental property is the rental income that comes with it.
Vacation rentals are generally in desirable locations — meaning you can charge a premium rental price. Many people use their rental income as a second income or a way to make money during retirement. Once you’ve paid off the home’s mortgage and accounted for expenses, everything left over is profit.
Keep in mind that the revenue may not be consistent, as many vacation locations have on- and off-seasons. If this is the case, you may want to look into advertising as a longterm rental home for the off-season periods.
Con: Risk in Investment
When it comes to vacation rental investments, these are often considered a risky investment. The two main risks to consider are financial risks and natural disasters.
Financially, you’re relying on both the vacation and real estate industries to do well. If the vacation industry tanks, you will have fewer people booking your property. And, if the real estate industry tanks, your property may drop in value, making it harder to resell at a profit.
Also, many vacation homes are in locations that are at high risk for natural disasters. If a hurricane or tropical storm came through, could you afford the damages? That’s why it’s important to have extra insurance coverage, such as flood insurance and hurricane insurance.
Pro: Tax Benefits
There are many tax benefits to owning a vacation rental property.
If you rent out the home for more than 14 days a year, you can consider it a business on your taxes. That means that you can claim any expenses as business expenses and deduct them off of your taxes.
Keep track of everything you spend money on when it comes to your rental home or else you’re missing out on the tax benefits.
Con: Unexpected Expenses
A vacation rental property can come with a lot of unexpected expenses. You want to make sure you always have an emergency fund dedicated to the rental property.
These expenses can range from home upgrades, such as a new roof or investing in a marketing company to land new rental bookings.
You need to be prepared to financially cover any expense that comes your way.
Is Owning a Vacation Rental Right for You?
After reading this article, it’s time for you to decide whether owning a vacation rental is right for you.
If you want to add a vacation rental to your investment portfolio, you can expect a stream of rental income and many tax benefits. But, vacation rentals can be considered a risky investment and can come with unexpected costs. If you can afford to fund any expenses and take on a risky investment, then a vacation rental may be a great option.
Interested in buying a vacation rental? Now you need to think about what kind of vacation rental you want to purchase. Read this article to discover tips for buying a condo.
