5 BEAUTIFUL REASONS TO BUY A BEACH HOME, THEN RENT IT
By: Lynne Anderson - Realtor, ABR Sea Pines Real Estate at the Beach Club
With 12 miles of sugar sand beaches interspersed with pristine salt marshes, networks of rivers and lagoons, championship golf courses, tennis courts and fine restaurants, Hilton Head has a history of turning visitors into residents. Every year nearly 2.5 million visitors vacation on the island and more than $1.75 billion dollars of real estate changes hands - pretty big numbers for a relatively small island. While the beaches may bring buyers here, renting their vacation home can help them stay. Here are 5 great reasons to put your island retreat on the vacation rental market:
14 is the magic number. You can rent out your vacation property for up to two weeks (14 nights) each year without having to report that income to the IRS. The house is still considered a personal residence, so you can deduct mortgage interest and property taxes under the standard second-home rules. If you rent the property out for more than the 2 weeks, be prepared to report the revenue as business income on your taxes. If you’re selecting the 2 top Hilton Head weeks, go with the RBC Heritage Golf Tournament in April and July 4th, when weekly rental rates soar.
Mi casa es su casa. Owning your own vacation destination may be the ultimate reward for life’s hard work. An impromptu island get-away in your own home, stocked with your family’s belongings make for a more memorable, relaxing trip. Today’s travelers agree. Surveys indicate vacationers will book more comfortable environs with high-quality interior finishings over dated, less expensive properties. Many management companies require clients’ homes to be stylish with modern conveniences including granite counters, stainless appliances, flat screen TVs and high speed internet. Your exquisite taste can reap excellent returns through higher rates and repeat rental guests.
The mortgage payment is just the beginning. Utilities, insurance, landscaping, linens, pool maintenance, cable and internet among others can quickly add up. But owners will incur these same expenses without vacation rental income. When you use the home as a rental, the IRS says you can deduct “all ordinary and necessary” costs associated with your business. If you buy new towels for your home, repaint a guest room, install new irrigation, repair a dishwasher or buy a bottle of wine for incoming guests, you may be able to deduct these expenses. Consult your financial planner to be sure.
Buy now and reap retirement benefits later. 18% of vacation home buyers plan to use the property as their primary residence in the future, according to the NAR. If your retirement plan involves living near the beach, start looking now. Buying and renting a pre-retirement property today will allow years of use with family and friends. While it’s impossible to predict future prices, short term rentals may allow buyers to lock in todays low prices, build value and hold a stronger equity position for the future. Later, if you discover the mountains are calling, you’ll have an asset to sell versus squandering those hard earned, pre-tax vacation dollars.
Do the math. If you’ve decided to buy and are exploring rental opportunities, do this calculation to find your break even point: If your monthly mortgage payment is less than or equal to 1 peak-week rental fee, and you rent approximately 17 weeks a year, your property should come close to breaking even. Most vacation rental markets average 10-12 strong peak weeks. Other costs such as utilities, landscaping, and association dues can be partially covered by earnings from the remaining weeks of off-peak rentals. Don’t forget to factor in rental management fees if you utilize a separate company, which are also deductible.