Is a Vacation Condo a Good Investment Property?

Since the pandemic has changed the way many people vacation or the safety measures around a traditional vacation, there has been a surge in interest for owning or renting a vacation home especially for vacation homes on or near popular beaches such as the many great beaches here in Maryland.

With this surge in interest, those who are considering purchasing a vacation home for themselves to use whenever they would like to go on vacation are wondering if it would be a good investment to use the property as a rental when they are not on vacation.

Here are some things to consider before purchasing a home in the hopes that it will be a good investment property and will make some passive income.

Vacation homes and taxes

When owning a vacation home and renting it out there are a few things to consider when it comes to taxes such as:

If you rent out your vacation home for 14 days or less you will not need to report the income from the rental. This short amount of rental time will however not generate enough income to help you justify purchasing a vacation home.

Renting your vacation home out for more than 14 days classifies you as the landlord of the property in the eyes of the internal revenue service. You will be responsible to pay taxes on the income but you will also get significant deductions on your investment property as well.

Related: 7 Smart Keys to Owning an Investment Condo

If you limit the amount of time you use your vacation rental to less than 10% or less than 14 days for personal use it will be seen as an actual investment property. With an investment property, you can deduct expenses and depreciation. You may also take losses that may offset other investment income. With investment property tax claims it is always best to employ the help of an accountant.

Can renting a vacation home help to offset expenses?

In the case of a condo, there are extra fees on top of the monthly mortgage payment in which some vacation homeowners look to offset by renting out their vacation property. Not only is it nice to have the possibility of covering the monthly mortgage payment but some who are looking into a vacation condo wonder if they might be able to also cover any monthly condo association fees. To decide if this might be an option you would want to add in the monthly condo fees with the monthly mortgage fees and divide by the number of nights that you would hope to have someone renting your condo vacation unit. If the number you arrive at is

higher than competing rents for the area that the condo is in then it is safe to say renting out the condo will not cover all of the expenses from the mortgage and the association fees.

Additional fees to consider

In addition to the expense of paying for the vacation condo, there is also the added expense of maintenance and upkeep, furnishing, cleaning services between guests, and if you plan to hire someone to manage the property for you. All of these are the standard fees of business when it comes to vacation investment properties which will also need to be considered if you are hoping that all of the costs of your vacation property can be covered with rental income.

Related: What do you actually own in condo ownership?

So the answer to the question of if a vacation condo is a good investment is it really depends on the location, the actual condo association you are considering purchasing a condo in, and whether it would be a high demand property that you could charge enough of a nightly rate to cover all of your expenses. If you are dedicated enough to making sure that it is the best property in its location and highly desired by renters and well-advertised it could be a great investment.

For more information on great condo properties in West Ocean City please contact us at any time.