Why Buy Vacation Rental Home as a Real Estate Investment?
At the end of the day, purchasing an investment property for short-term rental use is about the prestigious lifestyle it provides the homeowner.
For most, the motivation is to take advantage of the numerous ways to generate wealth.
Here are a few examples of how our clients are benefiting from their investment properties.
Generate Passive Income
AirBNB, VRBO and many other online platforms have made it easy for homeowners to market their properties and generate significant revenue. So much so that;
“Home rentals have outperformed hotels in 27 global markets since the onset of Covid-19” New York Times
Generating wealth from passive income is just the tip of the iceberg. Have you thought about reducing your overall taxable income? That right! Here’s how most homeowners take advantage of reducing their overall tax burden.
Tax Deductions: Depreciation
Depreciation is defined as, “a reduction in the value of an asset with the passage of time, due in particular to wear and tear”. The IRS states: "You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment”
According to the IRS, the “useful life” of a rental property is 27.5 years.
This means that as a homeowner you will be able to distribute the depreciation deduction across the “useful life” of the property. As a result, you will be able to benefit from a “lower taxable income” for many years.
Restoration, Betterment, and Adaptations Deductions
Although all three of these have a different definition, they are treated similarly when it comes to the depreciation of the building.
For example, what if you want to increase rental traffic? Or you decide to build a movie theater? What about a game room? Well, the IRS treats these as adaptations and allows the owner to deduct the cost from their taxable income. However, this type of expense is treated differently than repair and maintenance expenses.
Tax Deductions: Repair and Maintenance
Worried about other people’s mistakes or general wear and tear? Don’t be!
Repair and maintenance costs are fully deductible in the year they occur.
Tip: It is very important to work with a property manager that is detail-oriented to prevent normal issues from becoming a nightmare for future guests.
Pass-through Tax Deduction
Some owners qualify to deduct up to 20% of their net rental income from their taxable income. Here are a few important deductions worth mentioning:
- Mortgage Interest
- Insurance Premiums
- Property Taxes
- Travel Expenses
If that’s not enough to get you excited then this option may not be for you, but here are a few other things that are definitely worth mentioning.
Data from the most recent HPES shows that home prices are expected to increase by 18.2% over the next 5 years. The bulls of the group predict home prices to rise by 27.4%, while the more cautious bears predict an appreciation of 8.3%”
“Orlando’s annual median home price for 2020 ($265,000) was 9.1% higher than the 2019 annual median price ($243,000)”
Who doesn’t dream of the ability to escape all the pressures of life but feel right at home? No more excuses. Always have a destination to:
- Celebrate (Anniversaries, Birthdays, Holidays)
- Create Lasting Memories
- Obtain a New Perspective
- Build Family Traditions
- Prioritize Health
Long-term studies have shown a connection between vacations and heart health… women who took very few vacations… were twice as likely to have a heart attack or coronary death than women who had a couple of breaks each year…and men who took fewer vacations were much more likely to die from coronary heart disease than men who took more vacations” travelandleisure.com
Relax, Recharge and Get Inspired!
As you can see, owning a second home as a short term vacation rental is a no-brainer. However, there are many steps to consider from start to finish.
At McNally, we take great pride in helping our owners navigate these challenges. Our team’s goal is to make it so seamless that it’s ridiculously easy.
From design to build, purchasing, so you can remodel, or for turnkey projects… We have the knowledge and experience you need to start generating wealth today!