What If Your Vacation Home Doubles as a Rental Property?

Renting out your vacation home when you’re not using it is one way to cover the costs of owning it. Property owners who choose to rent are choosing to use their homes as investments with the potential of generating year-round income. It is not a bad way to cover mortgage payments, taxes, etc.

Vacation homes can make attractive rental properties in the right locations. Take North Carolina’s Outer Banks, for example. The Outer Banks offer thousands of rental homes in one of America’s most popular vacation destinations. You will also find plenty of rentals in central Florida, Utah’s ski resort areas, and popular tourist cities like New York and San Francisco.

As a property owner, is there anything you need to be concerned about in terms of renting? And if so, are the hassles of renting worth it? As a property owner, your best bet is to think things through and seek advice from people who know the ins and outs of the rental game.

Property and Bed Taxes

One of the first things that comes to mind, at least where finances are concerned, is the tax issue. For starters, property taxes tend to be higher in popular vacation destinations. Higher tax rates are exacerbated by the value of rental properties themselves. If you are looking at a 3000-square-foot home with six or seven bedrooms, your tax bill could be quite hefty.

Bed taxes are another concern. For example, consider Florida. The Sunshine State doesn’t collect income tax from its residents. Instead, its budget is largely supported by tourist dollars. Bed taxes carry the load. You will have them to if you rent out your Florida vacation home. You can build it into rental rates, but you’ll still have the administrative hassles of collecting, reporting, and paying the tax.

Maintenance and Management

When your vacation home doubles as a rental property, there are also maintenance and management concerns. You already know the amount of maintenance required by your primary residence. Imagine what it might be like with a rental property, especially given that renters are not likely to treat your property like their own. You are going to spend a certain amount of money on maintenance.

Where management is concerned, it’s fairly common for vacation home owners to contract with local property management providers. A management company will look after your home in exchange for a monthly fee. They might even arrange for rentals, collect rental payments, etc. But every dime that goes into management represents money taken out of your rental revenue.

Building vs. Buying

If you haven’t yet made a deal on a vacation home, consider the pros and cons of building vs. buying. This may make a difference in light of plans to rent out your property. In other words, you may choose to buy instead of build.

Park City, Utah architects at Sparano + Mooney say that people who build vacation homes tend to want what they want. They choose to build so that they can have what they consider the perfect home in the perfect setting. That’s awesome. But do you want to spend the money on a custom vacation home knowing that renters may abuse it?

It is one thing to invest in a vacation home for your own exclusive use. It’s an entirely different matter to use a vacation property as a source of income. When your vacation home doubles as a rental property, you are a landlord as much as a homeowner. Renting is not for the faint of heart. Think long and hard before you do it.

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