Is it a Good Idea to Own a Vacation Rental?

by Liz Nitz

I suppose the answer to this is complicated and really depends on one’s goals with the vacation rental, how much work one wants to put into the rental process and the cost/benefit analysis of purchase price and rental income.

I will use my vacation rental as an example.  We own a vacation rental on the Big Island of Hawaii at the upscale Mauna Lani resort.  We purchased it in 2014 when prices were still somewhat depressed from the great recession.  We put down 30% and have a second home mortgage with rate less than 4% for the rest.  We have large HOA (about 1400 per month) due to the fact that in Hawaii the HOA takes care of all exterior elements including landscaping, exterior paint, roofing, common areas such as fitness center, pool, beach club etc.  But considering we are not on the island for 10 months of the year, we are happy to pay someone to manage all of that for us.

We advertise our home on Vrbo and Airbnb.  Those websites have changed a lot over the years and charge the renter more than they used to but people are still using them.  I have seen a huge shift in the past few years away from Vrbo and much more to Airbnb.  A general rule of thumb is that foreigners will use Airbnb as will younger (millennials and younger) Americans but baby boomers and some genX will use Vrbo.    It has been fascinating to watch this evolution.  We also do have quite a few return renters that will just contact me directly after their first year.

The big question that one has to answer which will directly affect if you lose money on the vacation rental itself or break even (assuming you have a mortgage), is how involved do you want to be with the management of your rental?  First thing you need to look at is the IRS code – https://www.irs.gov/taxtopics/tc415 and then discuss with your accountant.  You must take the rules of this very seriously.  There are a few more issues to discuss with your accountant as enumerated here: https://www.marketwatch.com/story/own-a-vacation-home-heres-how-the-new-tax-law-affects-you-2018-12-03  How much you can write off on your taxes and the passive activity loss is directly affected by your activity.

So what that means is that for the best tax benefit, you need to actively manage your vacation rental – that means taking the bookings, communicating with guests, keeping a maintenance log, and doing as much of the work yourself at least to get up to the 750 hours per year.  If you have a booking agency deal with your guests, you are not actively managing your property and while you may have some tax advantage, it is nowhere near where it would be if you did it yourself.

Another large factor is just income vs expenses.   Before purchasing a vacation rental, I would check occupancy rates pretty carefully.  Can the home be rented all year long?   Are there seasonal adjustments in rates and what are the rates?  Does the number of nights rented per year times rate cover your expected expenses? What about the weather?  We picked our location on the Big Island partly because of its very strong rental history and the consistent weather.  It is always in demand as there is no rainy season, no mud season, etc.  We are also rarely affected by flight delays as there is no snow coming this way.  As a result, we enjoy high rates of occupancy.

But to be in demand as a vacation rental, one has to maintain your home carefully.  Things cannot be broken, everything should be sparkling clean, it should be well equipped.  We regularly upgrade and repair elements in our home so it is pristine.  As someone who manages her own rental, I watch the reviews carefully and strive for perfect reviews every time.  The only way to achieve that is to pay attention and make sure you visit your place.  In my opinion, anyone who is self-managing needs to visit once a quarter at least.

Let’s take money out of the equation though.  What do you get for a vacation rental?  For us, we are happy to meet up with our family members who live apart from us in a place that has years of happy memories.  Even though we enjoy traveling to new places too, there is something special about everyone knowing we are going to a favorite place that is stress-free – knowing what to expect has a lot to do with the lack of stress.

In the end, everyone needs to take a look at the cost-benefit analysis and weigh the work against financial impact versus your happiness that you get from enjoying your second home.

Check out this website https://buyvacationrentals.net/ for more vacation rental purchase information!

 

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Rental Investment Property in Bozeman

Vacation Rental Investment Property in Bozeman

A few years ago, Bozeman redid the city zoning map. In an attempt to control and steer growth, and to keep home prices affordable, Vacation Rental Investment Property were curtailed and limited to very specific areas.  Any grandfathered vacation rentals could not keep that status

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Bozeman’s Growth Plan for the Future

Bozeman’s Growth Plan for the Future

Bozeman in the summer of 2020 saw an influx of out-of-town buyers who helped the median home price jump more than $88,000 from July to August. And the Gallatin Association of Realtors Market Watch is predicting the market to stay hot during the typically slower winter months. All this

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The following homes listed below were just listed in the last 7 days. This seller’s market is hot so we keep a close eye on the latest inventory. Subscribe below for instant updates of your ideal criteria.

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205 N Tracy Avenue 207, Bozeman, Montana 59715, Bozeman, Montana 59715

205 N Tracy Avenue 207, Bozeman, Montana 59715, Bozeman, Montana 59715

2Bedroom(s)
2Bathroom(s)
1,517Sqft
The Hotel Bozeman Residences offers the best of Bozeman with 34 full-service condominiums that provide owners with all of the perks and amenities of the co-located hotel, including a private residential lobby and ground floor spa and wellness center access, concierge, housekeeping, valet, and an exclusive chef-driven food and wine program. The Residences merge high-design and premium experience.
$1,785,000

1704 W Lincoln Street, Bozeman, Montana 59715, Bozeman, Montana 59715

1704 W Lincoln Street, Bozeman, Montana 59715, Bozeman, Montana 59715

2Bedroom(s)
1Bathroom(s)
1,041Sqft
Better than new, 2nd floor end unit with front row views of the Bridger range is now available for purchase. This unit comes fully furnished and outfitted for immediate occupancy. Currently being used as a mid term rental, this successful rental has enjoyed almost 100% occupancy since it began as a rental.
$515,000

515 W Aspen 314, Bozeman, Montana 59715, Bozeman, Montana 59715

515 W Aspen 314, Bozeman, Montana 59715, Bozeman, Montana 59715

2Bedroom(s)
2Bathroom(s)
1,308Sqft
Beautiful condo in the Aspen Crossing Building in Midtown Bozeman. The ground floor of this condo features a bedroom and bathroom, open kitchen and living room. The open loft allows for an additional sleeping area, with bathroom, walk-in closet and laundry/bathroom. The oversized windows bring in plenty of natural light, and provide incredible views of the Bridger Mountain Range.
$825,000

855 Doane Road, Bozeman, Montana 59718, Bozeman, Montana 59718

855 Doane Road, Bozeman, Montana 59718, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
0.46Sqft
2,072Sqft
This home has it all! Elbow room, shop space, fully renovated home & fantastic location to Bozeman, 4-Corners & Big Sky. Home has been thoughtfully updated over the years with tons of custom & personal touches that are sure to please the most discerning folks.
$824,900

140 Village Crossing Way 1f, Bozeman, Montana 5971, Bozeman, Montana 5

140 Village Crossing Way 1f, Bozeman, Montana 5971, Bozeman, Montana 59715

3Bedroom(s)
3Bathroom(s)
1,672Sqft
Welcome to downtown luxury living at its finest! This first-floor corner unit condo offers a perfect blend of comfort and style with a split design of 3 bedrooms and 3 full bathrooms, each equipped with spacious tubs. High ceilings throughout and floor-to-ceiling windows give the unit optimal natural light. Radiant heat and a gas fireplace in the living room create a warm and inviting atmosphere.
$1,049,000

1301 Wildflower Way, Bozeman, Montana 59715, Bozeman, Montana 59715

1301 Wildflower Way, Bozeman, Montana 59715, Bozeman, Montana 59715

2Bedroom(s)
1Bathroom(s)
0.93Sqft
2,000Sqft
A slice of Bozeman with big Bridger Mountain Views. This quaint home sits on just under 1 acre with easy access to Hyalite Reservoir, Montana State University, Downtown Bozeman, and many hiking/mountain biking trails. Home has 2 bedrooms with two baths and a separate additional dwelling unit with 1 bedroom & 1 bathroom. The ADU is also fenced with their own separate yard space.
$1,200,000

480 Balsam Drive, Bozeman, Montana 59718, Bozeman, Montana 59718

480 Balsam Drive, Bozeman, Montana 59718, Bozeman, Montana 59718

5Bedroom(s)
2Bathroom(s)
1.40Sqft
6,222Sqft
Welcome to this beautiful home in the Hyalite Ranch subdivision, a gem in south Bozeman. You'll love the soaring vaulted ceilings, stone fireplace, rustic wood beams, and open floor plan as you walk in. Large windows show off 360° stunning views, including Spanish Peaks and Hyalite Canyon.
$4,100,000

2400 Durston 82, Bozeman, Montana 59718, Bozeman, Montana 59718

2400 Durston 82, Bozeman, Montana 59718, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
1,713Sqft
Looking for a move-in ready home with single level living? Visit this lovely 3-bedroom condo with a back-yard stream. Are established trees a must? This yard is very private with plenty of shade in the summer. Duplex-style condo, natural wood trim surrounding all the windows and interior doors, gas fireplace.
$649,000

3105 Madrona Lane, Bozeman, Montana 59715, Bozeman, Montana 59715

3105 Madrona Lane, Bozeman, Montana 59715, Bozeman, Montana 59715

5Bedroom(s)
3Bathroom(s)
0.19Sqft
3,053Sqft
Ideally situated on a corner lot in the highly sought-after Alder Creek subdivision, this stunning custom-built 5-bedroom, 3-bathroom family home is brimming with premium upgrades. Enjoy the comfort of air conditioning, walk-in closets in every bedroom, cherry cabinetry + granite countertops in the kitchen, laundry room, and all bathrooms.
$1,095,000
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