Lots of the time vacation rental owners venture onto the idea when they are trying to figure out how to offset the cost of owning a second home or even their current home! There are really only a few ways to accomplish this, they are to rent the property long-term, open it as a venue for events if you have space or to post it on Airbnb, Tripadvisor, Booking.com, ect. This blog is going to focus on the pros and cons of renting it longer term or renting it as a vacation rental.
First, let’s look at the advantages of long-term rentals. When you rent your property long term to a tenant you will have the following advantages:
- More stability (no slow season)
- No need to fully furnish the property
- More in-depth screening of tenants
- Easier compliance with regulations (some places don’t allow short-term rentals)
- Easier accounting for tax purposes
- Easier access to mortgages
- Tenant pays for utilities
As you can see it sounds pretty attractive! Especially when you go to buy a property. Most loan types allow long-term rental income to be counted towards your income for debt to income qualification purposes. Most of the time you can count 75% of the gross income depending on how your taxes look and other factors, consult a mortgage broker to find out more. Currently most banks, however, will not count short-term rental income when calculating your debt to income ratios. In some cases, this could be the difference between getting approved!
The other big advantage I wanted to dig more into is the stability and predictability. When doing a long-term rental you can run credit checks and background check. This provides additional protection to make sure you get their monthly rent! It is also cheaper upkeep wise. Typically most long-term rentals make the tenants put the utilities in their name and pay for them. This means fewer bills for you!
Now for the cons of long-term rentals:
- Not flexible
- Less earning potential
- Long eviction processes in most states
- Long commitment
- More screening fees
Since you sign a contract with these tenets, it is not their property for that amount of time. That means long-term rules apply such as having to follow local eviction laws. If you have a bad tenant it can take months to even a year to kick them out of the property! The other huge downside is you usually can’t use your own property. You can’t kick them out so you and your family can have a weekend getaway. You also have to have affordable monthly rates to attract a tenant to live there in the first place! Let’s see how vacation rentals solve these issues and where they fall short.
Vacation rentals have become extremely popular in the last few years. Sites such as Book.com, which only served hotels in the past, now are allowing these rentals to be listed with them. This makes it easier than ever to start renting your house or space as a vacation rental! Here are some of the perks:
- Higher earning potential
- More flexibility
- Fewer days needed to rent
The vacation rental option really shines when we look people that own a second home or vacation homes. That is because most people only used these properties a few weeks out of the year. Then they sit for the majority of the year and the owners still have to maintain them, pay property taxes and mortgage interest. They don’t want long-term renters because they want to use the property for yearly trips or family events. This is why vacation rentals are a great option for these property types.
With a vacation rental, you can block out dates on your calendar to make sure it is open for when you want to use it and producing income for the dates it is not in use. This can offset some of these fixed costs such as property tax and interest payments. The best part is you can start slow by only making a week or two available per month until you find out if it is right for you or not. Tools such as Lodgable can help you get bookings and limit the amount of management time as well or you can hire a property manager to do the work for you.
While there is no right or wrong way to own a second home/vacation home, everyone can benefit from the extra revenue of renting out an unoccupied property. You might as well reduce your costs of owning and keeping the property in good shape! If you have any questions about the short-term rental world, reach out to our team. We would be happy to answer your questions.