If you’ve ever dreamed of owning a vacation home on the beach or a secluded cabin in the mountains, it might actually be a wise financial move.
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Vacation rentals have become one of the most popular places to stay when traveling, especially for large families. And with platforms like Airbnb and Vrbo offering a simple way to list your property and collect income, it’s a lucrative side hustle for many.
So if you want to own the perfect getaway but are not sure if it makes financial sense, here are six ways that owning a vacation property can benefit your wallet.
Enjoy Rental Income
Short-term rental properties have become a massive market, with over $30 billion in revenue generated last year, and projected growth for years to come. The best rentals are typically in vacation-worthy locations, so if you find a deal on a property in a fantastic location, you can generate even more income.
The best part of owning a vacation home that is only rented on a short-term basis is that you can still enjoy the home, and only rent it while you are away. It’s the best of both worlds, as you own your own private getaway, but can generate great income every day you are not using it.
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Have a Place To Stay on Vacation
If you have done any travel planning lately, you know that grabbing a hotel reservation in a prime location is getting more and more difficult. So why not buy your own place to stay in the location you want, making it simple to book your travel. You no longer have to worry about lodging availability because you control the schedule!
In addition, you can save on resort fees and taxes, and the cost of lodging is locked into your mortgage instead of ever-increasing hotel rates. Plus, if you own the entire property, you can typically host more people, as most hotel rooms are limited to four or five occupants.
Build Home Equity
Once you own a vacation property, you will most likely have a mortgage to pay. While the expense can feel like a burden, it is also helping you build home equity. The longer you pay down your mortgage, the more equity you have in your property, which you can use down the road with a cash-out refinance or home equity line-of-credit.
In addition, if you find a great deal in an up-and-coming market, you can also benefit from home appreciation. While prices can go up and down, over the long term, real estate typically goes up. And if you make any improvements to the property, you can gain even more home equity, especially if you improve things like the kitchen area or bathrooms.
Save on Taxes
While a vacation home is a great place to get away from the busyness of life, it is also an investment. And the great thing about investing in real estate is the ability to write off a lot of expenses on your tax return. Plus, if you rent out your home for less than 14 days per year, the rental income is tax-free (as of 2023).
You can write of many different costs associated with the property, including:
Property management fees
And one of the biggest deductions is the ability to depreciate the property each year (although this can increase the taxes you pay if you sell the house later).
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Overall, owning a vacation property can have some massive tax advantages that help you keep more money in your pocket and out of Uncle Sam’s. Just make sure to consult with a licensed tax professional to ensure you properly take advantage of all of the tax breaks available to you.
Have Someone Else Pay Off Your Mortgage
Vacation rental properties can earn a decent income, and if you get a great deal in the right market and keep it rented throughout the year, you can use the income to pay off the property itself. While this is a common strategy of long-term rental investors, if you have a vacation property, you can have someone else pay off your mortgage.
A well-managed vacation property can let you enjoy a place to stay for the next-to-nothing if you use the income to pay all the property expenses. And if you understand the market and can get enough coveted 5-star reviews, you can even make a profit while still having a place to stay on vacation (for free!).
Build Passive Income for Retirement
A vacation home is a great place to gather family and friends, but it can also be a source of income for your retirement. Owning one (or more) short-term rental homes in desirable locations can help you generate income for years to come, while building an appreciation for homes. Eventually, if you want to sell the house, you might have smaller mortgages and a higher value than when you bought them.
Or if you bought a vacation home with the intention to retire there, you can rent it out now to pay down the mortgage and earn some income to improve the property to get it move-in ready. And if you sell your current residence to move into your vacation home, you might even be able to completely pay it off, lowering your retirement expenses.
Vacation homes might seem like an expensive luxury, but if you decide to rent it out for income, it can become a lucrative investment. With the ability to build home equity using the rental income, and paying down the mortgage at the same time, owning a vacation home might actually be one of the smartest financial moves you make this year.
Investing in real estate is risky, though, and a down market or vacancies can turn this investment into a huge expense. Due diligence is always recommended before making a large investment like a vacation property.
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This article originally appeared on GOBankingRates.com: 6 Financial Upsides of Owning Vacation Property in 2023