Should I Buy a Vacation Home as a Real Estate Investment?

The rise of the real estate investment sector has made investment properties an attractive option for both homebuyers and real estate investors. Who hasn’t fantasized about buying multiple properties and spending different nights of the week in a different property while renting out the others and making money?

There’s no reason for such fantasies not to come true. Knowing how to become a real estate investor doesn’t limit you to one specific type of investment properties; you can buy a condo or even a studio apartment in a different state and enjoy the perks of owning multiple properties. Have you ever asked yourself, “Should I buy a vacation home?” Only you can answer such a question as you need to figure out the details in order to be prepared for any circumstances that may or may not come your way.

Owning a vacation home may not be a viable investment choice for everyone, but with the right amount of good finances, thorough research, and a bit of hustle, anyone can enjoy such a perk. Maybe you are wondering should I buy a vacation home and questioning the suitability of such properties to your lifestyle. If so, we can help by listing the advantages and disadvantages of this real estate investment.

Major advantages of buying a vacation property as a real estate investment

Rental income

When real estate investors buy vacation properties, they are expected to use it a few months a year in total. A real estate investor must know how to make money in real estate as the most common way to do so is through rental income. A landlord usually has to decide on a rental strategy between two options to generate a substantial rental income: renting the property as a long-term rental to tenants interested in a semi-permanent home or as a short-term rental. The most common practice among vacation homeowners is renting such properties out as short-term rentals or Airbnb rentals. This can generate a substantial rental income that covers the costs of the property and allows the property owner to enjoy some revenue from his/her property when not in use.

Deciding to use investment property as an Airbnb rental requires landlords to furnish the home and deal with more details about their income property than long-term rentals. Yes, it can be a hassle to become an Airbnb host and deal with Airbnb guests to ensure all is set in the property. However, it has proven to be a very lucrative option for many young real estate investors.

It’s the go-to real estate investment

Vacation rentals are so much more than just second homes; they are a very lucrative investment choice for investors who choose the right location to invest in. Finding the right location to invest in can have an impact on your return on investment. If you are still wondering “should I buy a vacation home?” then think of your vacation home as a buy and hold type of property. With the rise of prices in real estate in vacation destinations, you are destined for some great returns.

Tax deductions

For homeowners who prefer to keep their vacation properties available for their own use, renting out your vacation properties for less than two weeks a year can have major tax deductions. You can deduct the interest rates on your mortgage and property taxes from your gross income.

Drawbacks to having a vacation property:

Should I buy a vacation home even if it has a high purchase price?

If you are still wondering “should I buy a vacation home?”, then you should think about the vacation destination that you would like to own a property at. You must know that the location of your property can affect the price dramatically, especially in highly-populated areas. This can be a double-edged sword for the real estate investor as the high purchase price can translate into a higher rental income. It’s always good to lay your options down and do a thorough research on the kind of property that you’d like to own.

Should I buy a vacation home if I need to put a high down payment?

For income properties, the real estate investor has to put a down payment of at least 20% of the initial purchase price in order to qualify for a mortgage. This is the case for any property that’s not the owner’s primary residence. So, you must make sure to cover the down payment to secure the property loan.

Should I buy a vacation home if I can’t afford maintenance and upkeep costs?

You must always ask yourself if you are ready to cover the costs of maintenance and upkeep for a second property. Many new real estate investors don’t factor in such costs when closing on the property, as this can cut a lot from the rental income of your property. As a landlord, you will be responsible for fixing up any issues with the property. Therefore, be ready for that dreaded phone call when a tenant calls to tell you that something is not functioning right.

How can real estate investors find the best real estate investments?

When investing in real estate, most successful real estate investors urge beginner real estate investors to put their money in properties that are sure to bring them revenue, but how can real estate investors be sure of the solidity of their investment?

The answer to that is performing a real estate market analysis that goes beyond the details of your real estate investment through real estate investment metrics such as occupancy rate, cash on cash return, and cap rate. Such metrics can be found in Mashvisor’s comparative market analysis. Using Mashvisor’s analysis can help investors know the value of the potential property compared to similar properties in the same area.

To conclude

A real estate investor must always ask him/herself, ”should I buy a vacation home?” This can help him/her determine the best approach to future investments. Real estate investors must make different types of decisions on a daily basis, as the key to a successful real estate business is spotting the best opportunity and figuring out the least expensive way to employ it. Buying a vacation property may sound like a dream come true for most people, but real estate investors must not think of such a purchase as a second home, but rather an investment property. So, always conduct thorough research to determine the best opportunity for you in the real estate market.

To learn more about all aspects of real estate investing, continue reading our blog.

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