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Income Property That Works While You Sleep

I tripped over the most romantic mountain home for sale on recolorado.com and fell instantly in love. It was as if Ralph Lauren and Ted Turner intersected at this very property hundreds of miles removed…from anything. This could be the perfect income property, renting it to guests through one of the several vacation websites, I mused.

In theory, vacation rentals, unlike many investments, work while you sleep…literally. Hosting guests staying a few days or a week, sounds on the surface like an easy way to make a buck. Doing it well is another story.

I had been a preferred host on Airbnb years before Denver came down hard on renta-preneurs. Ultimately, new city restrictions weren’t what stopped me from being a preferred Airbnb host. My divorce from Airbnb happened over a celebrity visitor to Denver renting my property. This celeb owned an epic ego and ultimately stole more than just the mattress pad. No one could ever explain the missing curtain rods.

Airbnb was at the right time (after the Great Recession) and in the right place (round-the-world resort vacation destinations). According to an October 2018 report by Patrick Sisson of Shutterstock.com, one in every 24 homes in Hawaii is used as a vacation rental and half the state’s 23,000 vacation rentals were owned by non-residents. In Florida, Airbnb hosts welcomed 125,000 guests a 110% increase in business year over year that generated $24.7 million.

The financial reward of owning multiple properties, even those used as vacation rentals, is in the return…not just the daily rental rate, but in appreciation over time.

Barrons.com reported in September 2017 that mortgage interest up to $1.1 million is deductible on primary homes and one vacation home combined. Mortgage interest isn’t deductible on third or more properties. Property taxes are deductible on all homes, no many how many properties are owned.

Tax implications are based on use. If you rent your property for 14 days or less, the income doesn’t have to be reported to the IRS even if its $10k a week (BMO Private Bank.) Do the math: if you rent for 21 days, the after tax income can equal 14 days of tax-free income. If you live in a rental home while you are repairing or improving it, the IRS does not consider those days to be personal use.

Some people daydream about their next vacation destination. I found myself daydreaming about the Colorado mountain getaway until it was too late.  

If you’re serious about a second home to be used as a vacation rental, stop dreaming and take action. Ask your tax advisor for guidance on the tax piece of rental properties. Ask a Park Properties Realty expert for advice on rental income properties.