They attribute this increase to vacation home owners who are now looking for short term rentals to help cover expenses when they are reluctant or unable to sell the home.
But is owning a vacation home also a good real estate investment? Here’s my take:
On the plus side….
- You love going there. Now with a rental property in the area – perhaps at least part of your trip could be a business expense (consult your own tax professional for the nitty gritty fine print detail on real estate investing and taxes).
- Limited supply. There’s limited land near the waterfront or other vacation attractions. As long as people want to vacation there - the demand will help your property appreciate in value.
- Higher rents Could Mean Better Cash Flow. Short term leases may have higher rents than longer term leases. In other words – the rent you can ask for a weekly rental is usually more than 4x what you could ask for a monthly rental.
- Vacation with Other People’s Money. Perhaps you may even find yourself in that wonderful situation where the income from renting your vacation property covers all the annual expenses. And you get to stay for a vacation at the property – effectively for free. That beats Priceline just about any day.
But on the down side…
- One horse town? Is tourism the main – perhaps the only – employer in town? If so – you may want to plan extra reserves to cover higher than usual vacancy expenses when the economy burps.
- More Home Value Volatility. During boom times – everyone wants the condo in Maui and prices escalate. When money gets tight- people sell their vacation home before their primary residence, often flooding the market and driving vacation home prices down.
- Higher property management fees and expenses. Providing a fully furnished short term rental will cost more in terms of property management, cleaning fees, and repairs when the fraternity who rented the house for spring break sobers up enough to head back to school.
- Seasonality. So do you plan to use the property during peak rental periods like holiday weekends, Thanksgiving, and New Years? Or do you rent it out to maximize your cash flow? Hurricane watch by yourself in August on St. Croix may not be the dream trip you were looking for.
- Can You Commit? Here’s the big question. Do you love the place enough to want to go there regularly for years to come? Perhaps in lieu of going somewhere new?
That last point is my personal downfall. For years, I have had a goal of owning a beach house – ideally right on the Pacific ocean. But when push comes to shove – I have never been able to commit to any given town or property. My list of new places I want to visit always seems to win out over committing to one wonderful spot.
So in the mean time – I invest in boring real estate in towns with solid employment, population, and demographic fundamentals. And I vacation wherever I can convince my frequent flyer miles (and hubby) to go. Some resources for finding a great short term rental:
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