Yes, it would be great for everyone to gather at the second home but how long can one’s children and grandchildren really stay? Is that where they want to use their precious vacation time every year?
How one spends their vacation can drive the desire to buy a second home. Once a client has visited the same location a few times, it becomes familiar and can feel like a second home. They obviously love the area or they wouldn’t go back. They start to think, “It would be easier to not have to find a rental, live out of a suitcase or haul gear up here every year if we had a place of our own.”
That’s true but it is an incomplete evaluation. When you buy a vacation home, you get rid of some inconveniences but take on new ones like maintenance, upkeep, taxes, utilities and all the other elements of the joys of homeownership. If you don’t have the time, temperament or ability to attend to these things from a distance, you must pay others to take care of these things. That sounds simple, but for me here in Florida it has not been easy to supervise maintenance and other projects at the Montreat house.
For many people, being the renter is far easier than being the owner. Renters only pay for what they use, and the rest of the year they spend no time, energy or money on the property.
A common solution to these costs is to rent the property. After all, if the client has rented a place in the area several times, it is obviously possible to get some rental income to offset costs. Local realtors will likely tell the client it is easy, and will relay high occupancy rates and average weekly rental rates during peak season. Clients multiply that average rent by some number and see the vacation home as low cost, low risk or even a money maker.
Time to call “time out” and regroup. What was going to be a vacation home is morphing into a small business, and vacation rentals are not a great business for most homeowners. We do not rent our Montreat house. It has been rented in the past, but we found the business of renting to be more of a hassle than the rents were worth. We are not alone in that assessment.
A report from HomeAway, a vacation rental site, estimated that vacation rental owners spend an average of nine hours per week marketing or managing their properties. Further, it indicated that rents don’t even cover 75% of the mortgage payments for about half of vacation homeowners renting their properties.
That’s just the mortgage and doesn’t include maintenance or management fees. The study shows the average homeowner is able to rent just one-third of the year. All the expenses of owning a home continue year round.
Occupancy rates are far lower out of season than in season. Out of season is less likely to be a time when family or friends can get the time to visit. Many renters don’t want to or can’t rent a full week, and many homeowners find they want to use the home themselves during the season, eliminating some of the prime times for bringing in revenue. HomeAway estimates that almost two-thirds of rental owners spend even two weeks at the property.
Of course, agents like to remind people that real estate is all about location, location, location, and this property is way above average. Naturally, some properties really are above average. How can one tell what is true? The easiest way to cut through the anecdotes is to get a hold of tax records. Have the seller complete a Form 4506-T, Request for Transcript of Tax Return. The client will fill one out if applying for a mortgage. They should get one from the prospective seller.