Why Vacation Rentals Make Solid Real Estate Investments

why vacation rentals make great real estate investments bruce tuttle real estate agent hilton head island

Looking for the best way to make money outside your 9-to-5 job? Have you considered real estate investing?

It can be intimidating to dive headfirst into the world of real estate investment. However, buying a vacation rental home is one avenue that’s gaining a lot of popularity. It might be the best way to enter the real estate business while becoming a property investor.

Here are six reasons why you should consider owning a vacation rental.

1. Own a Dual-Purpose Property

If you’re a first-time real estate investor, you are probably considering all of your options.

Buying a vacation rental home has one clear advantage: It can serve dual purposes. You can use it as a second home, where you vacation with your family. When you’re not living in the home, you can rent it out to guests the rest of the year.

However, you also have the option of renting the home on a long-term basis. This option only works if you’re not interested in  using the house yourself.

2. Generate Rental Income

One of the major advantages of real estate investing, in general, and investing in rental properties, in particular, is that you gain steady income. How?

Through rental income.

The idea is to rent out your second home to guests when you aren’t using it. You’ll make money without having to necessarily buy an “investment” property. After all, your vacation home is your second home. It just happens to make money on the side.

When you buy a vacation home and use it as a short-term rental, the money you make from bookings actually helps you pay the mortgage and other expenses — such as property tax, insurance, maintenance, and repairs — for the place where you spend your vacations.

3. Build Value through Appreciation

In addition to making money in the short run, a vacation rental home makes money – potentially a lot of it – in the long term. A second home is a real estate property, and real estate generally appreciates in value over time.

When you are ready to sell your vacation rental property, you can sell it at a higher price and cash in on the profit. The best part is that you don’t have to do anything to enjoy this benefit. Natural real estate appreciation will take care of it.

However, if you want to make even more money when selling your property, make modifications and improvements to push up the market value of your vacation rental (also known as forced appreciation).

4. Earn Tax Deductions with Vacation Rental Investments

Similar to your primary home or an investment property, a second home also provides tax deductions, which apply to mortgage payments, property tax, rental income, insurance premium, utilities, and other rental expenses.

However, the situation with a vacation rentals can get somewhat complicated depending on the number of days you live in your property and the number of days you rent it out to guests. If you decide to buy a vacation rental, work with a professional accountant and/or a real estate attorney to ensure that you are taking maximum advantage of tax deductions without breaking any tax laws.

5. Take On Less Risk with Vacation Rental Investments

Investing in a vacation rental property exposes you to lower risk than other types of real estate investment. First, vacation homes in top tourist destinations, such as Hilton Head Island SC, attract plenty of rental guests, reach high occupancy rates, and charge a high nightly rate.

The combined effect is high rental income — which is how investors make money from their rental properties.

One way to reduce your risk even further is to choose a location and a property that can combine short-term rental income as well as long-term rental income.  Many resort destinations have higher demand seasons in addition to lower demand seasons. On Hilton Head Island, the strong vacation rental season typically runs from April through October, when you will have the majority of your weekly vacation rental income.

What about the off season months? There is a high demand during the off season for “snow bird” rentals. You can easily gain some monthly rental income from vacationers in colder climates seeking warmer climates during off-season months when your vacation rental would not otherwise generate weekly income.

6. Vacation Rentals Are Easy to Manage

While some people take on vacation rental management as a full-time job, you don’t have to do this in order to start making money in real estate. It’s feasible for your vacation rental to be a part-time job that doesn’t take up too much of your time, especially if you use a vacation rental management service, such as Hilton Head Properties Realty & Rentals.

Vacation rental management is a major concern for inexperienced investors, and it can potentially turn into a nightmare for the less experienced. Imagine having to clean your property, change the sheets, wash the towels, and refill the toiletries between each guest – sometimes multiple times a week – while working your 9-to-5 job.

What if you aren’t living in the same areas as your vacation property? Most owners don’t have the time to manage their vacation home rentals. Instead, they hiring trusted and experienced property managers or vacation rental management companies to take over those time-consuming duties.

Have questions about owning a 2nd home property with rental income?

Call me any time at 843-384-5535 or fill out the form below.

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