Are you interested in vacation rental property investment? There are benefits to owning a vacation rental, including some tax deductions. Owning investment property isn’t for everyone, though.
If you’re up for the work and have some money for investing, rental property can be a financially savvy move. Keep reading for information about investing in vacation rental property.
Pros of Vacation Rental Property Investment
There are several pros of owning your own vacation rental. These include:
- Property appreciation
- Potential income stream
- Business tax breaks
- Ease of use
Most properties appreciate over time, especially if they’re located in a prime vacation spot. This makes holding onto a property a good investment strategy in the long run.
You can do a cash out refinance rental property once you’ve had the property for a while. This takes untapped appreciation and turns it into cash.
While you’re holding onto the rental property, it’s a potential income stream. In the beginning, you may only break even. As you pay down the mortgage, the profit from the rental income grows.
Renting a property out for vacations also qualifies you for certain tax breaks.
The best part? When you’re not renting the property out, you can take your family there for your own vacation. You can’t put a price on the years of enjoyment a rental property investment offers.
Cons of Vacation Rental Property Investment
There are some cons when it comes to investment property. These include:
- Higher finance costs
- Maintenance costs
- Unexpected costs
- Other risks
Lenders want a bigger down payment on investment properties and the interest rate is also higher. That’s because investors more easily walk away from troubled properties if they’re not living in them. You’ll also need a great credit score.
Maintenance costs are higher on a vacation rental because you’ve got lots of people coming and going. There’s a lot more wear and tear on a place in that environment, and that leads to things breaking down faster.
You also have to be able to handle unexpected expenses in the rental as you would your own home. You’ll get a security deposit from the renters but that won’t always cover damages.
Many prime vacation rentals are in areas near the coast. These properties come with specific risks. This means higher insurance rates and possible times when you can’t rent your place out.
The Pros and Cons of Rental Property Investment
There are both pros and cons to vacation rental property investment.
Like most investments, owning a rental property is a long-term investment. You won’t see immediate returns unless there’s unusually high property appreciation.
On the other hand, you can’t put a price on the fun of having your own vacation rental, and the potential for making money is good. Using these points, make your own list of pros and cons and decide whether investing in a vacation rental is good for you.
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