Do you have a vacation home you no longer use? Maybe it costs too much to maintain multiple properties or you’re just tired of vacationing in the same place year after year. No matter why you aren’t using your vacation home, you have a tough decision to make: sell your vacation property or rent it out to a tenant.
Although renting your vacation property will bring you income, even if you still have a mortgage, it might be better to sell. Neither option is inherently preferable to the other; the right decision will depend on your personal circumstances.
If you’re unsure which option to choose, here are considerations that might help you decide.
Can you hire a property manager?
When debating whether to sell or rent your property, the ability to hire a property manager may make a huge difference. If you can afford to hire a single property manager or a full team of professionals, you may not need to sell your vacation property. If you can’t afford to hire a property manager, renting your vacation home will require hard work.
Retaining a property manager will make it possible for you to continue to receive rental income with very little effort. If you have the funds, it’s a worthwhile investment.
Will the profits be worth the effort?
The only reason to rent your property is to generate rental income. If you can’t collect enough revenue to turn a decent profit, it’s probably not worth keeping your property. There’s only one way to figure out if your potential profits make it worth holding onto your property and turning it into a rental.
Calculate all your expenses, then study the market rate for renting similar homes in the area. If you charge the market rate for rent, can you make a decent profit? If so, will that profit disappear when you need to perform repairs and maintenance, and pay for all required insurance coverage?
If it appears you’d make a good profit, but you still have a mortgage, there’s one more item to add to your calculation: property taxes. Once your mortgage is paid off, you’ll have to start paying property taxes. This is where you could see a large chunk of your profits disappear.
With property taxes counted as expenses, if you can still garner at least a few hundred dollars per month, it may be worth renting out. If you can’t generate that much, for whatever reason, you’re probably better off selling your property. The only exception would be if you’re willing to put in the time and effort to renovate your property so you can charge more rent per month. If there’s anything you can change that will justify raising the rent, it might be worth holding on and turning it into a rental property.
Is there a chance you’ll change your mind?
Do you think there’s a chance you’ll change your mind after you sell your vacation home? Will your children be upset because they can’t visit a place enjoy visiting? Talk to your family and find out if everyone is on the same page. Is everyone tired of heading out to the same spot year after year?
Is anyone ready for a change? Are you and your family ready for a new adventure? If there’s a good chance you could feel differently later, you may want to consider renting your property part-time as a vacation home for others. That way, you’ll be able to use it as your own destination whenever you want but bring in some money in between.
Just be aware of your local tax rules for short-term rentals as well as the laws that might require you to occupy the property part-time throughout the year. Another option is to rent your property through Airbnb. It’s possible to make a decent amount of cash this way and it can be a great source of retirement income.
However, if you do rent on Airbnb, make sure you understand the local laws. Local Airbnb laws can be confusing and frustrating for homeowners. For example, you might be expected to obtain a business license or pay a hotel tax to the city.
Some cities, like New Buffalo, Michigan, have banned short-term rentals altogether. Make sure you know what the local ordinances allow and require before you turn your property into a short-term rental.
Do you want to pass on wealth to your children?
Perhaps the most important reason to hang onto a vacation property is to pass on wealth to your children. You might not want to use the home for vacations anymore, but you can turn it into a rental and bequeath it to your kids in the future (assuming they’re interested, which you might also verify with them).
To rent or sell? That is the tough question
It’s a tough choice between selling and renting your vacation property. Selling your property means you will be free from all responsibilities. But it also means you’ll give up the income you’d generate by turning it into a rental.
Are you willing to let go of an asset that could generate income over the long term? There are benefits and drawbacks to either scenario, but you have to weigh the pros and cons according to your needs and expectations.
There are some things you still want to be able to see with your own eyes.
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by Kate Danone for EDMChicago, 7/14/2021