Whether you keep your vacation home as a weekend getaway, property investment or long-term retirement plan, second homes have one thing in common: Their own set of bills and expenses.
While income isn’t the only reason to consider renting out your vacation home, it certainly is one of the top reasons. While a majority of owners leave their property standing empty when they’re not around, a growing number are beginning to wonder: Is this downtime a lost opportunity?
Growth of the vacation rental industry
Currently, fifteen percent of vacation home owners rent their space for at least part of the year, estimates T.J. Mahony, the founder of rental listings site FlipKey.
As listing sites like FlipKey make it easier to find and compare rental properties, travellers increasingly recognize the benefits of vacation rentals:
- they can be a great option for long-term visits, particularly for business travelers;
- vacation homes are a better fit for groups of people, like vacationing families;
- many travelers find rental homes provide better value, with more space and features like full kitchens; and
- they are often in the community rather than the tourist area, something a lot of travelers appreciate about vacation rentals.
Since 2009, awareness of the vacation rental market has grown from 19 percent to at least 34 percent; it’s a sector that’s poised for growth.
A relatively hands-off source of income
While actual profits vary, rental income can at least help offset the costs of owning a vacation home and provide tax benefits.
However, like any small business, research and planning will make all the difference when it comes to deciding whether a vacation rental is financially the right decision for you. You’ll need to consider
- The local market. For example, if you’re in an active area, you may have no problem attracting guests at premium prices; if there’s very little demand, however, you’ll need to invest more time into attracting interest and bookings.
- Competition. In addition to taking the pulse of the local rental market, you also need to learn about your competition: How are they set up, and what are their rates?
- Budget. What are your current expenses for your vacation home, and how would those expenses change if you were renting your home? Is it likely that you can charge enough rent to make running a vacation rental worthwhile?
- Taxes and regulations. Rules can change from one region to the next, so make sure you consider taxes and any rental regulations that apply to your vacation rental.
It still takes time and money — likely both
A vacation rental is a small business; to get it started and moving forward, you’ll need to invest both time and money into pulling it.
Running a vacation rental requires attention to a number of areas, like
- property management,
- marketing and promotions,
- maintenance and additional admin.
There are many different ways to manage all these tasks. One of the easiest is to hire a professional property manager to look after all these tasks on your behalf. This requires significantly less time than doing it on your own, but it also costs more money.
You’re home won’t always be available, which may be a good thing
Renting your property means less availability to you, your family and friends. After all, chances are that high season for the rental market is also when you most enjoy putting your feet up there.
However, there also are benefits to having people in your home when you’re not using it.
“We much prefer they don’t leave the home completely vacant,” Laura Clark, senior underwriting manager at Chubb insurance, mentioned in an interview with Bloomberg about vacation homes.
Running a vacation rental could even decrease your insurance rate, depending on your provider, but from a security point of view the benefit is clear.
“Vacation or weekend homes, and those of residents away on vacation, are particularly at risk of burglary and revictimization,” wrote the U.S. Department of Justice in a paper called Burglary of Single-Family Houses. “Most burglars do not target occupied houses, taking great care to avoid them.”
More frequent use also means more “wear and tear” and more potential for damage, which can increase your maintenance costs.
However, there are ways to help mitigate this risk, like damage deposits, rental restrictions and screening guests. But there is ultimately no guarantee against such damage; even the most conscientious of renters can have an accident.
It’s all about finding balance
Running a vacation rental means balancing your personal interests against the financial benefits of having a business, and finding a level of compromise that works for you. The payoff is that a vacation rental can be an important part of helping you reach your long-term dreams.
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