How to Create Passive Income From Your Vacation Home

Making money on a property has probably crossed the minds of vacation homeowners at least once, especially if the home or condo is sitting empty for parts of the year when you aren’t visiting it.

Renting out a vacation home for part of the year is one of the most practical ways of offsetting the costs of the home, or even generating income. The idea may be simple: prepare financially, purchase the property, rent it, and enjoy the cash flow. But there are plenty of details in between that need to be ironed out before you can kick back in a lawn chair and enjoy the profits from short term rentals.

There are managerial tasks that never end, maintenance issues to stay on top of, and guest interaction to consider. Along with the expenses required to run vacation rental properties, these things can make the experience challenging.

Below, we put together a guide on the basic steps to generate a passive income from your personal vacation home.

A desirable location is paramount

If you are planning to buy a vacation home with the end goal of renting it out for part of the year, put in as much time as you can in selecting a good location. This doesn’t just mean a tidy beach a few blocks away or a nearby lake. The more the area offers to guests, the higher your eventual supplemental income can be.

If you already own a vacation home, do a thorough search of the locale to see what might be enticing to other visitors. You may have your own preferences about the area, but guests might be attracted to other things. Ideally you can find amenities that appeal to a broad crowd. This can include specific cuisines, pet-friendly restaurants and parks, and specific stores. 

Even if guests are coming out to get away from the daily norm, having quick access to a convenience store or a pharmacy will add a much-appreciated boost to your guests' comfort and peace of mind. 

Securing a property close to top attractions in the area is another surefire way to boost your rate and entice guests to book with you. Combining a well-kept property with desirable features and easy access to everything nearby is one of the best ways to ensure a continuous profit from your property.

Set up the property for success

Imagery is one of the driving factors when guests search for vacation rentals. Naturally, the more appealing the pictures on the listing are, the more likely the guest will book it. But to have a set of eye-catching photos to go along with your listing means putting effort into interior design.

Start by investing in attractive bedding and home furnishings. Many people will associate vacations with coziness and relaxation, so the more you invest in the appropriate look, the more enticing your rental will be. The same goes for the kitchen. Even if most people on vacation prefer going out, knowing that they can come back to a cozy and fully-equipped kitchen is a huge plus if they get the craving for a homemade breakfast or dinner. 

Consider hiring a professional photographer to get the pictures for your home but make sure they are as accurate as possible. It won’t benefit you to edit the images only for guests to come and realize this isn’t what was advertised. The more true to your word you are the more positive reviews you might get from your guests.

Be generous with your amenities

A beachfront home with a stunning sunset view might still lose guests if it doesn’t have the amenities they are looking for. So the more features you can pack into your rental, the better your chances of securing bookings. 

A snug cabin in the woods surrounded by pines and mountain air may be idyllic enough as it is, but a cabin with an outdoor hot tub to enjoy in the cold winter months will immediately make the property stand out. The same goes for beach homes nestled by the warm shores of the Pacific Coast. Any property that offers a pool and a patio for BBQ will have more interest from guests than those that don’t.

The cost to install these features is significant, but the long-term investment might pay off in a big way. 

Invest in upgrades and upkeep

As you embark on your landlord journey, the property will undergo wear and tear and eventually need improvements. It may be tempting to be as frugal as possible, but it will pay off, in the long run, to keep your vacation home in pristine condition with updated features.

This can include regularly changing the linen and kitchen supplies, investing in high-end toiletries, and keeping the home spotless. It also won’t hurt to consider how you can continuously improve the experience for your guests. This can include specific kitchen appliances, games such as billiards or ping-pong, or even something as simple as streaming subscriptions.

Upgrades to the exterior should also be priority since the overall appearance of the home plays a significant role in guests’ impression. But be aware of using the correct construction materials when making any changes, since incorrect usage can end up costing you in the long run.  

Consider hiring a property management company

If you live far from your vacation home, managing the property can become a real burden. There are many logistical things to stay on top of that may be challenging to do if you have a full-time job to worry about. In addition, staying in control of maintenance and upkeep is a job in and of itself and might be challenging to manage if this is your first foray into renting out your home.

Management companies are an excellent way to reduce your workload. The management fees might be a significant expense, but peace of mind and professional management expertise can help you generate more income in the long run as you will constantly be on top of everything your property needs.

Hiring a property manager can also be a lifesaver in emergencies when something needs an immediate repair, and you are not available to take care of it right away.

Speak with your accountant

If you decide to start renting out your vacation home, speak to your accountant about the possible tax implications. Each state has different rules, but once you begin to generate rental income on your vacation home, it may be considered an investment property. 

The general rule of thumb from the IRS is that if you rent out your vacation home for more than 15 days, or you stay in the property for less than two weeks and rent it out for the remainder of the year, you will be subject to pay taxes on the rental income, as the home will now be considered an investment property.

There are specific deductions you can claim depending on your situation but you will have to sit down with your accountant to evaluate your particular circumstances and decide what the best course of action would be. 

For example, according to the IRS, ordinary managerial expenses can be deducted, such as management cost and upkeep fees. But any improvements that property owners make to the home, such as upgrades to the front porch or a better HVAC system, cannot be deducted as ordinary expenses. 

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