|Beach House or Mountain Home, the Answer is Probably "Yes"|
Vacation Home vs. Vacation Rental
A “vacation rental” can be defined as a furnished house, apartment, condominium, mobile home, or boat that is rented to others more than 14 days per year. The U.S. government incentivizes second home owners to rent their properties with some favorable tax benefits, such as deductions for mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation. Even if your property is not a “cash cow,” renting it can help defray some expenses and potentially generate some net income. HomeAway, a vacation rental listing site, reports that its vacation rental owners gross an average annual income of $27,360, up from $17,500 four years ago. So your accountant may think it’s a good idea, but you may still need more convincing.
The “sharing economy” has grown dramatically in size and sophistication in recent years, with an estimated 40% of 200 million Americans already participating. With 90% of sharers polled saying they would recommend a sharing service to a friend or colleague, that trend is sure to continue for the foreseeable future. If you thought only “hippies” and college kids participated in the sharing economy, it’s time to reassess the situation. The technologies that support sharing are reliable, mobile optimized, and intuitive, and the users are often people just like you who want to enrich their experiences by leveraging (i.e. renting) others’ personal assets.
Then there is your ability to actually use your second home. Vacation home owners generally overestimate the time they can visit their properties, while underestimating the rentability of their homes. If your friends and colleagues want to stay at your second home, paying customers likely will too. You may be all too familiar with the affable yet self-serving friends who view your vacation getaway as their vacation getaway, as described by owner Kathleen Hughes in her Wall Street Journal piece, “When Your Vacation Home Becomes Everyone’s Vacation Home.” She finally found satisfaction in her property once she stopped subsidizing her friends’ vacations and started earning income from her property. According to the same HomeAway study referenced herein, the average age at which owners purchased their vacation homes was 47 years old, and the average age at which owners began renting their vacation homes was 50 years old.
So if you decide to put your property in the rental market, how should you do go about doing that? The answer depends on your life situation and preferences. One option is to place it with a full service management company that will pay you guaranteed income (i.e. pay you whether it rents well or not) and guarantee your property’s condition. You can do that on your own or through the marketplace dedicated to guaranteed rentals, VacationFutures. You do a single deal with a management company that pays you for the right to rent your property, and you only do it once you are comfortable with the offer and the manager behind the offer. You still own your property and use it when you want to, but someone else ensures that you receive income, stay in compliance with local regulations, and receive a high level of property care.
The most popular option today is to do-it-yourself on sites like VRBO or AirBnB, with roughly 60% of vacation rental owners listing their properties on these sites. You will, however, find yourself spending multiple hours each week on the property’s management, which may not be the ideal use of your time. Your income may vary significantly throughout the year and year-over-year with the DIY approach, though that is also true for the last option for renting your property: traditional management.
With the traditional management approach, you sign a commission based management agreement with a third party manager (such as Vacasa) that agrees to provide full service management for your home when you’re not using it. As mentioned, however, income can vary over time, and there are generally few assurances given of rental performance.
Ultimately, only you can decide if you should rent your vacation home or not. It’s a decision that requires a hard look at personal usage patterns, financial implications, and even personal preferences for things like sharing your asset with strangers. If you decide to rent your home, you can then choose if guaranteed income (VacationFutures), DIY (VRBO), or traditional management are best suited for you and your vacation home. If you decide not to rent your home, you should mark your calendar to revisit the subject in 6-12 months as your circumstances change. Best of luck with your decision making process!
This guest post was brought to you by Mickey Kropf, Co-Founder and Head of Sales for VacationFutures, the online marketplace that allows vacation homeowners to receive guaranteed income offers and turnkey service from professional property managers.