Allowing Your Vacation Home to Pay for Itself
If you have recently purchased a vacation home, you may find that paying for two homes can be a little tricky financially. However, this doesn’t mean you have to get rid of it-make that home pay for itself!
Renting out your second home for a few weeks a year can help defray your expenses, sure, but most people find their properties fall far short of making a profit. However, there are ways to make this work more to your advantage.
First of all, vacation homes need to be rented 15 to 17 weeks a year in many areas to break even. This estimate is based on the assumption that one month’s mortgage payment would equal one week’s rental income in the peak season.
More expensive homes would need to be rented longer. Internet advertising is essential.
You need to reach the widest possible audience of potential occupants to keep your place solidly rented. It is recommended to post your property on three to five Web sites, at a cost of $100 to $150 per property per site.
Owners need to cut out the middlemen. Management companies take anywhere from 10% to 60% of rental income, making positive cash flow impossible.
Handling rentals and maintenance isn’t that tough, even long distance. You can write off mortgage interest and property taxes on a second home even if you don’t rent it out; if you do, you typically can deduct a portion of your other costs, such as utilities and maintenance.
In addition, you can write off up to $25,000 in rental losses if your modified adjusted gross income is under $100,000. That particular tax break is phased out as your income climbs, and disappears entirely when your MAGI is $150,000.
The National Association of Realtors estimates that 445,000 second homes were sold last year, up 24% from 2001, as baby boomers in their peak earning years sought vacation properties (and alternate investments to their faltering stock portfolios). The association believes that nearly 7 million properties nationwide are now second homes.
The vast majority of these homes were purchased primarily for recreation, and only 15% of the owners surveyed rented out their properties even part-time. But making a property pay for itself is a whole different matter.
In many areas, weekly rental rates have remained flat even as sale prices rise. The economics are better in relatively inexpensive areas such as Myrtle Beach or many areas of Idaho and Montana, but most popular coastal and ski locations have already soared too much in value.
In a few resort communities, a kind of rental backlash has set in, as year-round residents complain about noise and trash generated by transient visitors. In some Lake Tahoe communities, for example, vacation-home owners now have to pay a fee and obtain a permit if they want to rent out their properties for less than 30 days at a stretch.
Because of this, income potential can be greatly restricted. Don’t forget, a good property manager is all but essential if you’ll be renting out a vacation property, which typically is at least a couple of hours’ drive from the owner’s primary home.
Talk to several real estate agents and other owners to find one that charges reasonable fees, aggressively screens potential tenants, and stays on top of maintenance and repairs. A bad property manager can be a nightmare.
It can be easy for bad managers to take advantage when it comes to charging for repairs and pocketing the money instead of fixing things. That is why it is absolutely essential that you go down and check the property without giving them any notice, as often as you can.
Once a month at least is a good rule of thumb. There is no reason why you shouldn’t treat your rental property like a pile of money sitting out in the open-you would certainly go check on that often!
Best of all, you can use the property yourself when you are not renting it out. If you coordinate the dates you will allow people to rent with your own vacation schedule, it can be little to no inconvenience to you to have people staying there during other times of the year.
In this way, your home can not only pay for itself in no time, it can even make you a profit if you are careful and diligent about maintaining and advertising your property. Now get out there and get that vacation home of your dreams!
Tom Selwick has worked in the vacation industry for the past 18 years and written hundreds of articles about travelling and Utah Vacation Rentals.
Contact Info:
Tom Selwick
Tom Selwick09@gmail.com
http://www.brightonchalets.com
