Should You Rent or Buy a Vacation Home?
One of the popular ways to invest in real estate is to buy a vacation home. You can use it for your vacations or rent it out and use it as a short-term rental property. However, there are always some risks when deciding to invest in such type of real estate.
For example, you might face higher maintenance costs and management challenges as an owner. Also, many areas have zoning restrictions or regulations for some short-term rentals, so you might need help to rent it out the way you like.
So, is it wiser to rent a vacation home or buy one? Let’s dive deeper into the matter.
Reasons Why You Should Buy a Vacation Home
Real estate appreciation
One of the most significant advantages to buying vacation rental properties is that you will invest in property that will appreciate over time. This means that down the road, you will own a property that will be very appealing, especially if the location is a famous tourist destination, and you can make a lot of money by renting it. In addition, you can use it whenever you want to without spending too much on accommodation. Another advantage is that vacation rental properties often generate higher rental income compared to traditional rental properties. This is because vacationers are willing to pay a premium for a prime location and the amenities that come with a vacation rental. Additionally, with the rise of popular vacation rental platforms such as Airbnb, it has become easier to market and rent out vacation properties, making it a more lucrative option than traditional rental properties.
Generate rental income
If you invest in a vacation home in a famous short-term rental market, you’ll be able to generate passive income for the long term by renting it out. You can use the money to pay for the property’s mortgage and maintenance at first, but once you have ownership over the vacation home, all the money you have made will be yours to keep.
Tax deductions
When you invest in a vacation home, you can benefit from tax deductions, including mortgage interest deductions, property tax deductions, and home equity loan interest savings. However, all of these tax breaks depend on how much you rent out the home per year, so it’s important to double-check all the conditions before purchasing.
Convenience
When you own a vacation home, you will save a lot of time, and you’ll be able to create a comfort zone where all you should do is pack up and go to the place you own, especially when you need a long break. And you can forget about arranging accommodation or stressing over unfulfilled promises regarding the whole stay. When you stay in a home you own, you’ll be much more comfortable and relaxed, and you can have friends over to socialize and have fun with.
Retirement plan
Another great benefit of buying a vacation home is that it allows you to have a strong retirement plan. For example, you can use the vacation home to live in or sell and use the money for retirement. Or you can use it to rent and use the money as you deem fit.
On the Other Hand…
However, there are certain disadvantages when buying vacation rentals.
For example, a vacation rental can be a rather expensive investment. It will require property maintenance, which the owner is responsible for. It is a significant investment that requires careful planning and budgeting.
In addition, getting finances for a vacation rental is challenging due to the more stringent mortgage requirements, like higher credit scores and larger down payments. The interest rates are also higher.
Moreover, each state and city has rules and regulations regarding vacation homes, so you must be familiar with them before purchasing.
Last but not least, owning a vacation home means that you need to go on vacation to the same place repeatedly, which can get boring for some people after a while. In this case, the property can end up being purely a short-term rental property and less of a vacation home for the Investor.
Reasons Why You Should Rent a Vacation Home
On the other hand, you can rent a vacation home without purchasing one. Here is why you should do it.
Little responsibility
When you rent a vacation home instead of buying one, you’re only responsible for ensuring you leave the house the same way you found it. You don’t have to take care of the property maintenance so you can enjoy your holiday.
There are a lot of options
When you rent a vacation home, you can rent a different home every time, and everywhere you go. You won’t be limited to revisiting the same place over and over if you bought it in the first place. Instead, you can visit different locations, and there are many options for the types of vacation homes you can rent.
More affordable
Of course, renting a vacation home is much more affordable than buying one because no mortgages are included; you must pay the accommodation cost.
On the Other Hand…
There are a few essential disadvantages of renting vacation homes. If you like to be familiar with where you’ll be staying during your vacation and find it harder to feel comfortable, renting one is probably not the way to go.
Another disadvantage is the availability of vacation homes—usually, they must be booked well in advance, especially during peak seasons. So, if you want to do it at the last minute, you might be unable to choose the one you want. You won’t have a problem with this if you own the vacation home and, of course, if you don’t rent it out at that time.
Final Thoughts
It is always a good idea to explore your options regarding real estate investment, including buying or renting a vacation home. Both options have pros and cons, and you need to see which better matches your needs. You can even talk to property managers, real estate agents, or other professionals who can help you make and inform the decision because they already have much experience in that area.
