More and more people are buying vacation homes. In fact, vacation homes accounted for 11% of all residential real estate sales last year.
And most of these buyers plan to supplement their income by renting the home for part of the year. In a recent survey by the National Association of Realtors, 92% of vacation home buyers said they planned to rent the home within a year, and 76% said their purchase was motivated at least in part by the potential for rental income.
That’s great – as long as you do your homework and know what you’re getting into. Here are some things to keep in mind before you take the leap into becoming a part-time landlord:
- If you plan to rent the home, you’ll need to tell your bank because the mortgage rules are different. You might have to put up a slightly larger down payment and/or pay a slightly higher interest rate.
- Generally, you can’t count your anticipated future rental income as “income” for purposes of obtaining a mortgage.
- Insurance policies may be more costly for vacation homes, because you’ll need added liability coverage if you’re renting. (This will likely be required by your lender.) Also, if the home is near a beach or lake, you might need flood insurance.
- If your vacation home is part of a homeowner association, make sure there are no association rules against short-term rentals.
- If you’re counting on rental income, try to objectively evaluate the location from a renter’s perspective. A house on the beach will be much easier to rent than one that’s several blocks away. And while you might like seclusion and not mind that the home isn’t close to local boutiques, stores or restaurants, potential renters might feel differently.
- If you’re buying a home with friends or family members, you’ll want to work with a lawyer on an agreement that makes clear how the rental income will be divvied up, who’s responsible for what, what happens if the property is eventually sold, and what happens if one owner later wants to sell and another doesn’t.
- Be sure to figure all the potential rental costs into your budget, including advertising, maintenance, maid service, management fees, additional utility use, and taxes.