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The number of Americans who purchased a home as an investment instead of a lifestyle choice has escalated in recent years. An impressive 1.13 million vacation properties were sold in the United States in 2014, the highest number since records began, with consumers lured by the money-making opportunities that these homes provide. Here are five similar tips and trends to keep in mind when thinking about investing in real estate.
Before you invest, do your research. There are financial implications if you plan to buy a rental property for an investment instead of a primary or second home. If you rent out a vacation home for 14 or more days a year, you need to report your income. Anything under and your property is considered a personal residence by the IRS, meaning you can deduct taxes and mortgage interest like you would with a second home.
Be sure you understand the tax benefits and risks of real estate from the onset. If you need a helping hand, forums like BiggerPockets and local meet up groups where you can talk to other investors, will help you navigate the murky waters of real estate law.
“Real estate investment” is an umbrella term that covers various financial ventures. Long-term rentals enable you to rent your property over a period of months or years. Today, more than 110 million Americans live in renter-occupied accommodation. Short term rentals – or vacation rentals – have also exploded in popularity. This type of rental lets guests stay in your home for a short period of time and platforms like Airbnb and HomeAway make it easier than ever.
There’s also the recent trend of house flipping, where real estate investors purchase a cheap house at auction and resell it a few months later after being flipped. Additionally, in a flat market, investors are making repairs to these properties and listing them on rental sites instead of selling them to buyers.
Purchasing an investment property is much like buying a first home, although there are some differences. An investment property, for example, provides tax benefits, such as deductions for mortgage interest and repairs. These tax savings can help you pay for your vacation home. However, you’ll still have regular outgoings, such as property taxes, licenses, and bills to factor into your budget.
Vacation rentals can be extremely fruitful, especially if you own a home in a desirable location or if market conditions are just right. For instance, San Diego, San Francisco, Seattle and Los Angeles are among the top 15 American cities that make the most profit on Airbnb.
“Vacation Home for Free,” which airs on HGTV, shows how homeowners can live in their vacation home for free if they rent it out during peak season. Some investors purchase a property with a rental space attached, too, providing them with both a home and a source of income. They often live in the main part of the property and rent out the annex.
Those with financial savvy are buying a vacation rental before their first home. Millennials, concerned with rising property costs, are purchasing vacation homes further out of town and listing them on home-sharing websites when they’re not using them. These house buyers remain flexible while having options of renting elsewhere, living with their parents, or traveling while generating a rental income.
Seven million Americans identify themselves as real estate investors. Continuously on the lookout for profitable property opportunities, these home buyers often make a fast buck but you don’t need to be an investor to make money from a vacation home. A booming vacation-home market – more than 50 million people have stayed in an Airbnb property – suggests short term rentals provide a steady stream of income throughout the year.
For more tips, trends, and vacation rental industry updates check out these posts: