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

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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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38 Marten Peak Court, Bozeman, Montana 59718

38 Marten Peak Court, Bozeman, Montana 59718

4Bedroom(s)
3Bathroom(s)
0.21Acre
2,476Sqft
Located in the Woodland Park subdivision, this brand new modern, contemporary home is 2,476 sf built by Old Mill Homes. Situated on a quiet cul-de-sac, this home has 4 bed, 3 bath, two living rooms and great floor plan. Estimated completion will be the end of June. Main level includes the master suite and addl bedroom with full bath for guests.
$1,000,000

410 Westridge Drive, Bozeman, Montana 59715

410 Westridge Drive, Bozeman, Montana 59715

4Bedroom(s)
2Bathroom(s)
0.20Acre
2,406Sqft
This meticulously maintained 4-bedroom home in the well-established Figgins neighborhood is must-see. Upstairs features a beautifully updated kitchen/dining room, a generous sized living room, master bedroom, an additional bedroom, and thoughtfully renovated bathroom.
$875,000

1068 Flanders Creek Avenue, Bozeman, Montana 59718

1068 Flanders Creek Avenue, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
0.10Acre
1,500Sqft
Rare find in Bozeman-a townhouse with a three car garage! This well maintained home is move in ready, from the cozy and private front porch, to the spacious living room with a three sided fireplace allowing enjoyment from the kitchen/dining area as well. The spacious patio features privacy, a hot tub and plenty of room for entertaining or grilling.
$575,000

840 Quail Run Road D, Bozeman, Montana 59718

840 Quail Run Road D, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
1,519Sqft
You'll love this charming and well maintained condo centrally located in the desirable North Star Subdivision in Four Corners. This quiet bright end unit boasts 3 bedrooms, 2 baths and 1519 sqft of living space. The combination open concept kitchen, dining room and living room make for easy and spacious single-level living, accented with vaulted ceilings and a granite finished gas fireplace.
$529,900

2940 Upper Rainbow Road, Bozeman, Montana 59718

2940 Upper Rainbow Road, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
0.97Acre
1,588Sqft
Lovingly maintained single level home on almost an acre in the desirable Four Corners area. This charming single owner home comes to market for the first time and offers three bedrooms and two bathrooms with an open floor plan. The kitchen has plenty of counter space, ample cabinetry for storage and a center island.
$700,000

727 Harper Puckett Road, Bozeman, Montana 59718

727 Harper Puckett Road, Bozeman, Montana 59718

3Bedroom(s)
2Bathroom(s)
20Acre
1,780Sqft
GREAT HORSE OR GENTLEMAN RANCHER PROPERTY. PROPERTY WILL CONVEY WITH 50 INCHES OF WATER RIGHTS FROM THE LOWER MIDDLE CREEK DITCH COMPANY. HAS AAKER CREEK THAT RUNS YEAR ROUND THAT RUNS THROUGH THE ENTIRE PROPERTY. BEAUTIFUL GOLDEN WILLOW TREES. THIS PROPERTY HAD GREAT DEVELOPMENT POTENTIAL AND HAS NO COVENANTS OR ZONING. COULD BE A GLAMPING PROPERTY.
$2,700,000

96 Defender, Bozeman, Montana 59718

96 Defender, Bozeman, Montana 59718

4Bedroom(s)
4Bathroom(s)
0.52Acre
3,393Sqft
Stunning new plan under construction in Black Bull! This modern design is located on a .5 acre+ lot in a quiet cul de sac. Backing to state owned land, this lot provides an abundance of privacy. On the main floor are three bedroom suites, each with their own luxury bathrooms.
$1,899,000

171 Cold Smoke, Bozeman, Montana 59715

171 Cold Smoke, Bozeman, Montana 59715

3Bedroom(s)
1Bathroom(s)
1.19Acre
2,940Sqft
Glorious views of the Gallatin Valley and surrounding mountain ranges from this 1-Level custom. This home features 2 large master suites which has have large walk-in closets. One bath with separate tub and shower, 2nd Master with walk-in closet and 3/4 bath, additional bedroom and office.
$2,375,000

1609 Maple Street B2, Bozeman, Montana 59715

1609 Maple Street B2, Bozeman, Montana 59715

2Bedroom(s)
2Bathroom(s)
1,046Sqft
Stunning Mountain views of The Bridgers and Spanish Peaks can be seen from these incredibly well located, brand-new Bridgeview condos. Just down the street from MSU. These newly constructed condos boast dual bedrooms with en-suite bathrooms; featuring beautiful tiled showers with glass doors.
$499,500
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