It’s a very personal decision whether or not renting out a vacation home is the right choice for you. Some people may get nervous about having someone else in all of their tstuff. Ther eis also the concern that it’s a lot or extra work.
Those are the cons, but there are a lot of pros. The most obvious one is additional income to help pay down the mortgage. However there are manyh more benefits. We decided to rent ours out and want to share what convinced us to do so.
Benefits of Renting Out your Cottage
…
Ability to Own
Realistically, renting out your cottage might be the only way you’re able to afford it in the first place. Taking on a second mortgage is not something most people are financially prepared to do, especially if you are younger and just getting started building your net worth.
There are a ton of benefits of owning a cottage other than the obvious. It has the ability to be significantly cheaper than renting. Depending on the location, a week’s vacation at your favorite lake up north might set you back $2000 or more. It is also a great way to diverisfy your investments in something that has the potential to increase considerably. Cottages on lakes in top destinations in Wisconsin will appreciate.
If lakes are a big part of your life and you can’t afford to own a cottage on your income alone, consider buying a cottag e that pays for itself so that you can enjoy it and reap the long term benefits of owning anothe rpoperty.
Pay Down Expense Faster
There is a fine line between renting out your cottage as a business vs. renting it out for some extra cash. In the eyes of the IRS there are some hard cuts at 14 days.
If you rent it out for less than 14 days a year, it is considered Minimal Rental Use by the IRS. the IRS does not consider your rental activities to be a business and you are not required to pay income taxes on your earnings. 14 days might sound like it’s not worth it to go through the trouble of renting, however if booked over peak weeks in prime months like July and August, this could be considerable cash in your pocket. 1 week of rental income in July or August for us typically covers the equivalent of 1 month’s expenses, including mortgage, insurance, property taxes, and utilties. YES! You heard that right 1 week’s rent = 1 month’s expenses.
For cottage owners who inherited their cottage and don’t have a mortgage, renting for 14 days in the summer has the potential to cover all of their expenses for the year or help save for renovations.
Tax Deductions / Expense
If you choose to rent out your cottage for more than 14 days, the IRS does consider it to be a business so you will have to pay income tax on the earnings. On the bright side though, with its business classification you now have the ability to “write off” many of your expenses. The IRS allows small business owners to deduct “ordinary and necessary” business expenses which effectively means you will be able to reduce your reported taxable income by deducting expenses first, an dpaying taxes second.
You can only deduct up to the amount of your rental income list of things you can deduct is large. Some of the thing syou can deduct
So long as you yourself use it at least 14 days, or 10% of the days that you rent it out, it is still considered a second home as opposed to an investment property. For example
It's easier to do than ever
Even 20 years ago, this was
Airbnb, vrbo etc.
Social media
smart technology
A lived in house is safer
presence at your place makes it safe.
Things to Consider
…
Your place may have restritions
depending on where your place is, you may or may not be able to rent it out. typically if it’s a condo building tha tmight have some specific rules or a housing community.
Renting increases risk
Damageto yoru property or injury to guests. Insurance should cover you from both of htose things. We have specific insurance for this but we also get some coverage from Airbnb.
Efforts associated with managing the property
In general, renting your property out is more work than not renting it out.
It needs to be cleaner – we put stuff away all the time
you need to have some contacts to help you manage it from afar
you have to do some initial set up and do some customer comm / or deal with a property manager…
