While the American dream is to own a house, there’s another variation: owning a vacation home. Airbnb revolutionized vacation rental. It allows homeowners to easily and fairly risk-free take advantage of the market for short-term rentals. You have little reason to not buy a vacation home, especially with the Florida tax-break.
You may have a dream of buying a home that you can rent out to others. A vacation home is not always the same as a permanent residence. You need to be aware of all possible pitfalls and maximize your return.
Rent a home
Short-term rentals can be a great way to keep your home close to you even if you’re not going to live in it year round. Every area is different, so it’s important to research the rules and regulations for short-term rentals in the area you are interested in buying.
To get an idea of the rental market, you can also look at similar-sized properties on Airbnb and VRBO. You may find some communities more luxurious than others. If you are looking to rent a property, ask your agent how much it would cost to bring the home up to the local standard.
When it comes to your vacation home, be sure to pay attention to the basics like plumbing and electricity. Because there is no tenant continuity, it can be hard to maintain a vacation house. If a pipe bursts during the off-season, you may not know for days, or even weeks. It is best to purchase a property that is in excellent to excellent condition, and then to do the necessary maintenance.
… However, you should be cautious about relying solely on rental income
You don’t know what you can expect when counting on short-term rental income. You could end up financially strapped if you don’t plan for downtime. Vacation spots with seasonal rushes will be busy during peak season.
Are you buying at a peak price and the property’s value is likely to decline after you purchase it? These are all great questions to ask your agent.
Learn the taxes
Mortgage interest can be deducted from your second home. However, recent tax changes that affect mortgage deductions also apply to second homes. This has changed for high-end properties with sales prices between $750,000 and $1,000,000. There are also tax benefits, but you need to ensure you follow all rules.
One of the rules is how long you can stay in your vacation home. It can be occupied for no more than two weeks, or 10% of total rental days. If you live in an area that has constant short-term rental turnover this could mean that your stay can be extended to a month. However, you should not exceed the two-week occupancy time frame if it isn’t possible to be sure that you won’t be penalized.
If you rent out your vacation home for more than 15 consecutive days per year, you will need to file income tax returns with the IRS. This includes some taxes that you may not have thought of (e.g., tourist tax and lodging tax).
Do not forget about the hidden costs
There are additional costs associated with owning a vacation property, including homeowners insurance and property taxes. For one, insurance is more costly. Insurers believe that someone who is present at a property will be more likely than someone absent to identify and solve a problem and charge accordingly.
You might be able to have a serious problem while you are away so think about who will watch the house and take care of it. You might also want to consider investing in light timers and frequent visits from a local to ensure that everything is safe.
You’ll also need to keep the utilities running at your home, even if you’re not there. There may be HOA dues, taxes specific to your area, or other costs.
Talk to someone who has a vacation home, an experienced agent or both, to find out the full cost of homeownership.
After you have taken into account all costs, you can now set realistic prices for a vacation house that is within your budget. Get help from professionals like us! To determine which investment is smart for you, talk to professionals.
This post was written by Josh Dotoli! Josh is the owner of Josh Dotoli Group which is a laser-focused real estate team at Compass comprised of industry experts selling Fort Lauderdale’s best neighborhoods. This dynamic group is one of the top-selling real estate teams in South Florida with over $94 million in sales in the past 12 months alone. Looking for coral ridge homes for sale in Fort Lauderdale, we are the real estate team for you!