Someone once said that wealth is built on real estate because they’re not making more of it. Doesn’t feel like sound advice for those who bought during the real estate bubble, when housing prices were reaching record highs and anyone with a pulse could qualify for a hefty mortgage. A lot of people and financial institutions got burned during that fiasco that had long-lasting effects. And many hard-working Americans got left holding the bag when their APRs shot through the roof and their incomes couldn’t keep up on payments that in many cases doubled and tripled.
But regardless of the financial travesty that caused so many people to be underwater on their homes, real estate has been, and continues to be, a sound investment. And in many cases this investment takes the form of a second home. A cabin by a lake, a beachfront cottage or a condo in the center of Seattle. An oasis that serves multiple purposes. A getaway from your everyday life, a place to build memories with your family and an investment in what can be an uncertain financial landscape.
In this day and age, it seems an extreme indulgence to own a second home that may remain empty for much of the year. But many of those who have the luxury of owning a second home are finding ways to maximize their investment, which is crucial. For example, the second home could be used for a revenue-generating business, serving as supplementary income.
Since hotels don’t offer the charm and personality that a vacation rental offers for savvy travelers, it’s no surprise that smart second-home owners are capitalizing on travelers’ interest in experiencing the best that an area has to offer by staying in a local home vs. a generic hotel room.
For travelers, the possible amenities far outweigh the lack of hotel services. Locally, they can find cabins with fire pits perfect for s’mores in the evening, kayaks ready to use on a sunny Northwest day at a nautical beach shack, or space for the whole family with a fully stocked kitchen, room to spread out and personal touches that make them feel like a local. Honestly, you just can’t re-create the same experience at the local Holiday Inn.
And for homeowners? Depending on location, sleeping arrangements and amenities, it’s not uncommon to bring in $200 to $600 per nightly rental. Unlike a hotel, you’re not expected to come in for daily maid service or be on call for the smallest demand. Yes, you need to deliver an experience that’s commensurate with the cleanliness of a hotel room and enough amenities for the number of people that your home can sleep, but otherwise you’re unlikely to hear from guests until you ask them to give you feedback.
Unlike hotel guests, travelers who choose to stay in private homes tend to have the utmost respect and appreciation for the fact that they have been allowed to live like a local at about the same price as a hotel room would cost. But, of course, with more charm and personality.
With sites like VRBO (Vacation Rental By Owner) and Homeaway, it’s easier than ever to list and manage your second home as a vacation rental. For those who have better things to do than manage the complexities of running what is essentially a business, vacation rental management companies can take the burden off your hands.
Insurance: It’s all over the board, but honesty is always the best policy, no pun intended. Have a frank talk with your local agent about how to protect your asset. For incidental damages, listing sites like VRBO now offer damage protection insurance for up to $5,000.
To hire a management company or DIY? It depends. Do you have the time, energy and resources to do it yourself? Or do you even want to? Management companies typically charge 25 percent or more but do all the work, from inquiries, maintenance and cleaning, to creating ads and managing listings. If the tasks seem daunting, then a management company may be the way to go.
Tax implications: Once your vacation rental is used to generate revenue, you are liable for state sales and lodging tax; the revenue it generates also counts as income. The upside is that improvements and purchases may be deductible. Check with your accountant to find out about the ins and outs of converting your home into a vacation rental.
If you have the wherewithal to own a second home — every American’s dream — by all means do it. Enjoy the fruit of your financial dedication and be proud of what you’ve been able to accomplish.
The real estate market is climbing but there are still some great deals out there. And if you’re not utilizing your second home the majority of the year, consider using the time you’re not there to make your second home pay for itself. I can’t think of many solid investments that provide as much joy and enjoyment as a second home does. Sharing your second home with visitors to the area just makes it that much more enjoyed while providing for its own upkeep and a nest egg for you, the proud owner.Abigail Lovell is the owner of two vacation homes, one in Mexico and one in Gig Harbor. She is the owner of Abigail's Concierge Services, providing vacation rental management as well as cleaning, maintenance and landscaping.