Owning a vacation rental or working towards a life in the countryside are fabulous ambitions for those who have already invested in real estate.
There’s no question that owning your own home can give you many life choices down the track, especially when the family has grown up and moved out. A second residence or vacation rental is one of those #lifegoals achievements.
But is a vacation rental a sound investment?
While it can be the base for fabulous memories for you and your family, what is the possibility you might make some money along the way by renting it out, using the services of a property manager, Airbnb or similar services?
As an experienced agent, I’ve learned that a vacation rental is rarely a get-rich-quick scheme. Your income will depend on the style and size of the property and the area in which you buy.
I’d also suggest that finding a profitable vacation rental requires more research than any other type of investment property.
It’s a good idea to talk to a local real estate agent about property values and vacation rental levels of the area. You might also get some help online from Airdna (yes, Airdna!), which measures revenues and occupancy rates. You should also compare this information to how the property would fare if it was permanently rented so you can take this into consideration.
One survey in America by HomeAway suggests $30,000 might be a good income. Airbnb suggests $11,000 is the average for its subscribers, although many of those rent rooms in their primary residences.
Here are a few issues to consider if you’re thinking of a new life outside the city or investing in a vacation rental. I hope they prove helpful to you:
- Revenue can be seasonal – It’s a rare property whose income doesn’t ebb and flow with the seasons. And remember, you can attract higher rents in peak periods. The downside is, this might be when you wish to spend your time at the property.
- Location is critical – This will determine your income more than any other factor. Properties near the sea and snow will do very well compared with those in a town several miles from the coast or mountains. Try to find somewhere that’s a popular destination.
- Calculate costs – Due diligence is critical to ensure the rental does not become a cash-flow headache. Be sure you can handle any mortgage costs, as well as insurance, taxes, maintenance, cleaning, and the fees taken by the rental company.
- Don’t underestimate maintenance – You’ll find the property will stand empty for weeks at a time, and this can lead to problems going unattended.
- Check tax benefits – Use a professional financial adviser to maximize any opportunity to gain tax advantages and write-offs from your rental.
- Don’t be blindsided – If you spend a certain number of days in a vacation property or more than 10% of the days that it’s rented, you could lose all tax benefits. Talk to your professional financial adviser to get the latest tax rules.