Investing in Vacation Properties

Daniel Penzing
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What Are the Advantages?

There are three primary advantages of investing in vacation properties. As you can imagine, these endeavors can be quite lucrative. But the advantages are not just about the money.

Consolidating multiple investments

One of the biggest advantages of vacation property investment is that you can consolidate your assets into one investment. Having multiple investments across different market sectors is a great way to build wealth and diversify your portfolio. But it can be a bit of a headache if you get overwhelmed trying to juggle all of them. Employee stock option plans, personal savings, and real estate take up a lot of time if you are trying to juggle them. Vacation property investment is a great way to simplify your holdings.

Additional income

If you are an accredited investor, then investing in vacation properties can also generate passive income. In many cases, the properties you will buy will generate a steady stream of rental income. If you are living off of savings or if you have a relatively passive job, rental income can go a long way. Especially if you plan to buy multiple properties in succession, vacation property investment can be quite lucrative.

Profit from vacation locales

An Investment With a Tangible Use

Years ago, people often invested in items that had a practical use at the end of the day. They might have invested in a boat or better tools for the farm. In the last several decades, it became more common to invest in assets that somebody else might use or buy–buying stocks of the companies that made products, for example.

The trend towards investing in items that others would enjoy or buy is still fairly strong. But vacation properties, like the ones found with Kensington estate agents are making a comeback. Their tangible value makes them something you can use. And in many cases, you can get more use out of them than you would ever have thought.

Here we'll break down the elements of vacation properties and what it takes to invest in one and make it part of your investment options. The potential for strong gains in this type of investment are very real. But that doesn’t mean that this is a ready-made opportunity for everybody.

You Can Rent It Out if You Need Extra Income

One of the best things about vacation homes is that you can make use of them in more than one way. Many homeowners who have vacation properties rent them out when they are not using them. Thus, they bankroll a second income stream. Instead of renting it out to just anyone, you may want to stick to renting it to people who are responsible and who care about your house as much as you do.

You could also consider renting it out when you go on vacation. Again, it is safest to rent it out to someone responsible.

It Will Likely Rise in Value in the Long Term

Unlike a new car or a family pet, vacation property retains its value for many more vacation seasons to come. That’s because they’re sought-after possessions that are often in demand. Location and tried-and-true appeal will not lose its luster in a hurry.

So if you get a property that’s as unique as it is charming and valuable, you can relax in the knowledge that it stands a good chance of being a profitable investment.

It's a Potential Retirement Home

If you have a large retirement estate that conveniently allows you the opportunity to split your time between your home state and a vacation home, why not do it? If a retirement worthy property comes on the market, it could be the perfect investment since it would then double as a retirement home, as well as a rental property, perhaps even creating another income source. Let the property work for you.

Vacation Property Prices Are Depressed in Much of the Country

Investing in vacation properties can be a great way to increase your income potential and balance out your growth portfolio. The downturn in the economy left the commercial real estate market in a situation of oversupply, but vacation property development has continued full force around the country. While that might not be a problem for vacation home operators, some vacation home buyers may be disappointed to see how little appreciation their investment has seen. It’s important for vacation home buyers to understand that appreciation is not their primary goal with a vacation property … but it’s also important for them to understand that appreciation is possible.

We often get asked by vacation property buyers: why are home prices lower than I expected? What “normal” vacation property prices look like? What’s a good deal on a vacation property? What’s reasonable? How do I know if I’m paying a bargain? How do I know if a vacation property deal is too good to be true?

It’s easy to compare your vacation property investment to the past … but it’s more valuable to study a range of historical data. Looking at past market trends can help vacation home buyers predict the possibilities of their vacation property investment and make a savvy buy now.

What Are the Risks?

Investing in a vacation property might sound like a great idea. After all, you get to turn a profit when you rent it out to vacationers and when they purchase it from you after you have made all of your money from renting it out.

Invest in the Long Run

The truth is that it takes a while to make any money from vacation properties, even if your tenants are excellent. Because of the high price per square foot, it can be hard to sell the property and actually make a profit. Many people end up having to refund deposits that have been held by the landlord and have to sell the property without a profit.

Renting an expensive vacation property out to prospective buyers is not likely to earn you much money.

It’s also hard to get good tenants for a vacation property. If you’re used to renting out a typical home, getting tenants for a vacation property is more difficult. You need to get a license from your state to rent out your property as a vacation home.

Vacation properties require a lot of work and maintenance that would not be required for a typical home that would be rented out.

That means that you’ll need to put a good amount of money into the place initially to keep it in good condition. That is a lot of work if you want to keep the property looking immaculate.

Income Tax Considerations

If you are considering investing in vacation properties for the enjoyment that you will derive from them, you need to be aware of special tax provisions that apply to investment real estate. In this article, we will take a look at two important tax issues that may apply to your vacation property investment and how you can maximize your tax planning opportunities to achieve your objectives.

A vacation property gives you the chance to enjoy vacations and get away from the stress of everyday life. You gain time and get assured rest from work and pressures of every day obligations. It is also a chance to share this with your family, giving you the opportunity to meet and bond with them even more than you already do. Vacations are also considered as a chance to broaden your horizons and learn something new. Whether you wish to discover a different culture like Maori culture of New Zealand, see how the world lives in say the mountainous region of New Zealand or to view a different side of life in a foreign country, vacations are a chance to experience the world afresh.

However, like any other investment or business, there are some drawbacks and expenses that go with it.

Even though the expenses and costs may be mostly intangible but the taxes that you should pay for it will be very real.

If you are going through the excitement of building your vacation home or thinking of purchasing one, you will need to know the income tax considerations when investing in vacation property.

Vacation Property and Foreign Money

Over the past few years, thousands of people around the world have invested in vacation property. From Miami, FL to Sao Paulo, Brazil, properties in popular vacation locations have been snapped up. Even families who work hard to achieve the American dream often find that purchasing vacation property is a key component in their long term financial plan. And one of the driving factors for the popularity in owning a vacation home is the recent influx of foreign money.

The U.S. is one of the top vacation spots for the world, and the growth in America has increased the vacation profile of vacation property investment. Mexico, China, India, and other countries have taken notice of the potential in American vacation property so much so that many financial institutions in those countries have dedicated a new department to offering financing for overseas property owners.

Recent studies show that international buyers have acquired over 1 million homes in the United States. Many of those real estate buildings are located in Florida which accounts for nearly 30% of all sales. Top cities for foreign home buying include Miami, Orlando, Fort Lauderdale, Tampa, and Palm Beach.