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Beginners Guide: Vacation Home Rentals as Income Producing Investments

03 August, 2017

Beginners Guide: Vacation Home Rentals as Income Producing Investments

The last 50 years or so has seen the American Dream take on new proportions, with many families opting to add a vacation home to their real estate investment portfolio. From lakeside cottages to mountain cabins to beachfront real estate in popular tropical destinations, the possibilities are virtually endless thanks to advances in technology and innovative “No Worries No Hassles Ownership” options that take the guesswork out of vacation home rentals no matter where in the world they are located.

Buying Real Estate Abroad

The first things you will need to decide is how you will pay for the new real estate investment and where to invest money – either domestically or overseas. Generally speaking, look for destinations that have a proven track record of growing tourism numbers year after year in an area you will enjoy visiting again and again. Also, keep in mind that it’s better to pay cash whenever possible, because that means you are getting a property you can actually afford, versus one that you can afford to finance.

“If you are set on getting a vacation home but don’t have the capital for an all-cash purchase, do not take a second mortgage on your home,” wrote Investopedia. “If you take a mortgage on your primary residence to borrow for a second home, you will not be allowed to deduct the payments as personal mortgage interest. Thus, if you intend to borrow for a second home, you will have to take out another mortgage that allows for tax-deductible interest.”

Buying Real Estate with IRA

Another option is to use assets already held in an IRA account to invest in real estate. Most likely, your investment advisor won’t present this option, but a simple check of the Self-Directed IRA real estate rules will confirm that you can buy real estate with your retirement account. This is an attractive option for buyers who want to diversify their portfolio and also enjoy the benefits of owning a vacation home rental property with none of the hassles.

Turnkey vacation rentals are ideal for this type of real estate investment because all of the daily booking, maintenance, cleaning, etc. is handled by an experienced property management company and owners only have to worry about when they are coming to visit and enjoy the property, which should pay for itself and may even provide a handsome annual return on investment that is well above and beyond what you can expect to receive from the stock market.

Beginners Guide: Vacation Home Rentals as Income Producing Investments

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Properties in popular vacation areas usually tend to see higher-than-average appreciation,” wrote Investopedia. “A second home is considered an investment property if you spend less than two weeks in it and then attempt to rent it out the rest of the time.”

As you can surely imagine, a major component to successfully managing vacation home rentals involves partnering with a turnkey provider who understands the local market and has a good reputation. Also, look for new developments that are built using low-maintenance or maintenance-free materials that are designed to last and provide all the services and amenities of a big-box resort, since more and more travelers are looking for an authentic experience that brings them closer to the local culture and provides a more personalized touch.

Have you ever considered income-producing investments like buying vacation home rentals? Share your questions and concerns in the comments section below!

Would you like to know more about how vacation homes can provide excellent return on investment? Click the following link to download our free guide and discover how investing in real estate can beat the stock market and provide an essential hedge against inflation! 

Which is the Better Investment? Real Estate or Stock, Discover why real estate beats the stock market

Topics: Real Estate Investment Alternative Investments

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