A real estate investment in a desirable location like New Orleans will often appreciate in the coming years, based upon the economy. A vacation home might also produce enough rental income to cover a good portion of the expenses associated with the property.
Sizing Up the Possibilities
The reality of owning a vacation home can seem like a pipe dream to a lot of people. However, if you like to travel to the same place each year, the idea of owning your own vacation home — like a condo in the French Quarter or an American townhouse in the Garden District — might be tempting.
The advantages are obvious: decorate it how you like, keep your packing to a minimum, and use the property whenever you feel the need. The disadvantages are also apparent: taking out a mortgage for a second home, maintenance fees, HOA responsibilities, and third-party management fees. We encourage potential investors to be informed of all the options before taking the plunge, including the advantages of using the space as a short-term rental.
If you are thinking about investing in a vacation rental, be informed of your options and the limitations of using a vacation home as an income generator.
Reality of Renting Out a Vacation Home
Most people purchase a vacation rental because of location, location, location. Being able to use the property throughout the year is a major motivation, allowing them to spend more quality time with friends and family. But one vacation destination can differ significantly from others, so you should research factors like price trends, building numbers, and access to amenities like highways, airports, restaurants, and recreational opportunities before you make your final decision.
Consider how much your vacation home’s monthly mortgage payment will be and how many weeks you would need to rent it out in order to break even. The best time to visit New Orleans is typically February through May, which theoretically allows for about 16 weeks of peak-weak renting. Remember to consider other costs associated with renting your space such as utilities or property management fees.
A real estate investment in a desirable location will often appreciate in the coming years, based upon the economy. A vacation home can also produce enough rental income to cover a good portion of the expenses associated with the property, if not all of them. And since the property is technically a business, you can write off most of the expenses associated with the property, including repairs, meetings with a property manager, and other expenses. Understand the IRS’ 14-day rule to avoid any surprises come tax season, and keep all your documentation related to days you rented out the home in perfect order.
Plan Accordingly
Investing in real estate can be uncertain. Since a vacation home is not a primary residence, prices and demand can fall during an economic downturn. And although you may have equity in a vacation home, you should not look at it as a retirement investment because you might not be able to gain access to the equity when you need it.
The expenses associated with a vacation rental can include property management fees, utilities, taxes, and insurance. There are also certain risks associated with a vacation rental, including adverse weather, exposure to liability from renters, and a market crash that can result in reduced property values. And please keep in mind that operating expenses associated with a vacation rental (advertising, insurance coverage, paying for cleaning and maintenance) can be higher compared with a moderately-priced, single rental unit or apartment.
Get all the Facts by Contacting an Experienced New Orleans Realtor
If you are weighing the pros and cons of buying a vacation home and then paying for it by renting it out, contact our team at Satsuma Realtors to discuss your real estate investment goals and needs.