January 10, 2017

Buying a Rental Property for Retirement Income? The Benefits of Owning a Vacation Home

Growing up, I remember visiting properties with my parents as they were seeking out a new vacation home. We would sit in the car for a while after each home tour, discussing our thoughts as a family, with my dad taking down notes.

While the ultimate decision was obviously in the hands of my parents, they valued our opinions as children. After all, they would remind us, “One day, this home will belong to you kids, and you’ll come here to vacation with your own families.”

Unlike many folks, my parents are and have always been “keepers.” When they buy something, they keep it forevermore … or until it’s no longer functional, as in the case of a car or appliance. This has always been true for real estate. Even in their mid-30s, they were very cognizant of the retirement-related impact of buying a vacation home, especially one that they planned to use as a part-time rental.

It’s a fairly well-known fact that real estate can be a great investment, especially when it comes to retirement. Unlike other investments such as stocks, which can quite literally lose nearly all of their value virtually overnight, a piece of real estate has an inherent value that cannot be lost, assuming the home is insured. (But even a property with an uninsured house that burns to the ground would still have some value in terms of the actual land.) In fact, historically, real estate has seen an increase in value over the long term.

In addition, vacation rental homes have the added benefit of being a revenue source, among other things. So if you’re considering buying a rental property that can ultimately serve as a source of retirement income, you may want to explore some of the following benefits and considerations.

You’ll Build Equity Over Time and Earn an Income

The financial benefits of owning a vacation rental property are two-fold. Since you’re an owner of the property, you’ll build equity over time as you pay down the mortgage on the property. Even with a mortgage and other expenses, such as the cost of a property manager, maintenance costs, and property taxes, many rental properties still generate a profit for the owners.

Once the mortgage is paid off, and you own the property free and clear, the amount of income you see increases. Ideally, you can get a mortgage for a time period that allows you to own the property free and clear before you retire or in early retirement.

Working with a property manager is a great way to boost your vacation home income, as your property manager can increase bookings, improve guest experience, which enables you to charge more per booking, and increase the number of repeat guest bookings.

Many property management firms also work with marketing firms, property maintenance and repair service providers, and other professionals. Often, property managers secure a discounted service fee, which is passed along to you, the homeowner.

Additionally, depending on property usage, there may be cases where, if you choose to sell the home in the future, some of the capital gains could be tax-free.

You’ll Have an Opportunity to Explore a Possible Retirement Destination

Do you know where you want to retire? Many are uncertain about where they’d like to settle down once they reach retirement age. When you own a vacation home, you’ll have an opportunity to really get to know a particular location.

Ultimately, my parents did end up relocating to one of the areas where we had maintained a vacation home. So I can attest to the fact that routinely visiting your vacation home allows you to get to know the area in a way that’s really challenging under other circumstances.

Downsizing or Moving Becomes Less Traumatic for the Family

Many families struggle with downsizing. It can be difficult to give up a home where you grew up or raised your family; the place that served as the setting for virtually all of your best family memories.

When you have a vacation home, you’ll have a second location that can serve as a setting for those cherished memories. This can eliminate much of the “sting” associated with downsizing and selling the home where you raised your family.

What’s more, a vacation home property can also serve as a wonderful legacy that can be handed down to the next generation. It’s a place where your grandchildren, great-grandchildren, and future descendants can make memories.

You’ll also have a lovely retreat where you and your loved ones can escape from the stresses of home, work, and beyond. That’s a gift of immeasurable value that you can provide to your adult children, grandchildren, and even great-grandchildren.

There’s Less Hassle with a Vacation Rental Because There Are No Evictions

If you’re renting a property to long-term tenants (as opposed to a vacation rental), dealing with an eviction can be a very frustrating and time-consuming task; one that can also be quite costly for the property owner due to the eviction-related fees. It’s also fair to assume that the residents may not pay rent for several months in a row (depending on how long it takes to complete the eviction process in your state), resulting in added financial strain for the property owners.

Landlords are also required to meet certain requirements when it comes to the upkeep and maintenance of a property that serves as a full-time residence.

These issues just don’t come into play when you have a vacation home that you use as a rental property. You’ll avoid the hassle of evictions and there’s little worry about a guest taking you to court (and liability can be minimized further with the right insurance coverage).

Additionally, you won’t have to fear being in a situation where your property is occupied, but you’re unable to collect rent payments — a situation that can occur in the case of a renter who is in the process of being evicted.

The Value of a Property Manager for Your Vacation Home

Of course, managing and overseeing a vacation rental property does come with its own unique set of challenges. For instance, marketing a vacation rental is a continual effort, whereas you may go for years without advertising a full-time rental home since many tenants stay for years.

You also need to screen and vet far more people since you’ll have many different guests staying in the home. And when it’s a vacation property, guests tend to be a bit more demanding and less tolerant if something is broken or in need of repairs. But this is where a property manager can be a tremendous help.

A property manager can oversee virtually every aspect of your vacation home, from marketing the property and vetting guests, to performing repairs, maintenance, and other home ownership tasks.

If you’re seeking a property manager for your home, make your way to Rented.com, where you’ll find some of the world’s top property managers, ready to make an offer to manage your vacation rental property. In fact, many of the property managers Rented.com works with offer an income guarantee, so you can receive a set amount of monthly income regardless of actual occupancy rates. Get started today by signing up for free on Rented.com.

Image: Pixabay user Coffee

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