With today’s record low real estate prices and attractive mortgage rates, now may be a good time to think about investing in a second home that ultimately can be used as your permanent residence upon retirement. By taking a “buy-and-rent” approach before you’re ready to retire, your new home will actually have partly paid for itself by the time you’re ready to move into it.
“Buying and renting out a second home as a vacation rental property until you’re ready to move in upon retirement can significantly help offset the cost of ownership,” says Brian Sharples, CEO of HomeAway, the world’s leading online vacation rental marketplace. “The income stream, in addition to tax write-offs for maintenance and repairs, make this an attractive strategy for many people nearing retirement.”
According to HomeAway, the average second home owner rents out their property to travelers 17 weeks a year, generating more than $28,000 in rental income annually. And the demand for vacation rentals among travelers is growing, which is good news for second home owners. In fact, 87 percent of travelers who looked into a vacation rental in the past say they plan to stay in a vacation rental in 2010 – a significant increase from the 67 percent who stayed in a vacation rental in 2009.
To generate income from a second home prior to moving into it when you retire, Sharples suggests consumers take the following steps:
- Consider the location and market potential – Carefully review the markets where you want to retire, and before you buy, consider the areas where consumer demand for vacation rentals is high, but inventory is low. For example, Atlantic City, N.J.; Sunny Isles Beach, Fla.; Hampton Beach, N.H.; Dauphin Island, Ala., and Mount Pocono, Pa., were among some of the most underserved markets for vacation rental properties in 2009, according to HomeAway.
- Factor in tax write-offs – Talk to an accountant about the tax advantages of owning and renting out a second home. Expenses such as insurance, utilities, home maintenance and depreciation can be deducted, depending on how often you rent out the property and how many weeks you personally stay there each year.
- Advertise to attract renters – When you’re ready to rent out the property, be sure to market the availability of the vacation rental to travelers by listing it on sites like HomeAway.com or VRBO.com, which reach millions of travelers each month. A 12-month listing costs $329 – or less than $28 per month – on HomeAway.com, so the advertising pays for itself with your first booking – and the rest is pure rental income.
- Stay competitive and network with owners – Check out other similar vacation rentals in the area to determine what rates they’re charging travelers, and price your home at a competitive rate to help drive bookings. Also, be sure to talk with other owners to get their tips and advice for maximizing a second home investment.