In 2018, it was estimated that there are about 252 million housing units in the United States; nearly 3.5 percent of those are identified as “second homes.” There are many reasons why a property owner may have a second home, but a fairly prominent reason is to use that property as a vacation home. Travel has become a major part of our culture, with the tourism industry growing exponentially around the world. People want to travel, whether to the other side of the globe or to a getaway a short distance away.
However, since a vacation home can only be used for a certain amount of time each year, it is inevitably sitting empty for a fair amount of that time. For people who own vacation homes, this vacancy presents a prime opportunity to gain profit from that vacation home, whether through a professional management business, an online resource like Airbnb, or privately renting it out themselves. For real estate investors, the vacation home market is one that can turn a large profit. Here are some of the benefits of investing in this type of real estate.
One of the benefits of investing in vacation home real estate is that you stand to turn a significant profit. Depending on the type (single family vs. condos etc.) vacation homes typically rent for a shorter duration than a normal rental property with a one-year lease. These shorter duration periods (whether weekly or daily) usually rent at a premium such that if the vacancy rate is low enough, the cumulative amount is higher than that of an annual rental. The trick of course, is finding the optimal ratio or pricing vs. vacancy, and you will likely have to optimize this pricing paradigm by having many different price points based on the seasonality of your rental. Done correctly, the net effect can be achieving a CAP rate significantly higher than that of an annual rental.
Tourism is growing
The tourism industry is growing every year, so there are more and more opportunities to benefit from investing in vacation homes. You can follow the trends and see where people are traveling and make your investments accordingly. For areas with above average growth, the net impact can be above average appreciation of both your rental income and property value.
By investing in vacation homes, you’re investing in a dual-purpose property. You have a place that will generate a profit, but also a property you can use as well. Personal use is one of the largest reasons why people invest in vacation properties and a benefit you don’t get from virtually any other type of investment. You can’t vacation in your stock portfolio!
Vacation homes (like many forms of real estate) provide a great opportunity for tax benefits. You can write off many of the expenses associated with your rental through proper research. If you are planning on utilizing the tax benefits from owning a vacation property, make sure to work with a professional beforehand. There are specific requirements for how long you spend at your vacation rental and how many weeks you rent it out; you need to meet these requirements in order to get some of the tax benefits.