An investment property is a smart way to add annual income or pay off an additional mortgage for faster ownership, but the benefits continue beyond there. You also enjoy many appealing write-offs along the way and a higher selling profit when your home appreciates.
Essential to solid returns is the location. A vacation home in a high-demand area is an ideal place for an investment property. In the case of Sunriver, Oregon, the high demand combined with year-round beauty and ample outdoor activities enables you to rent your home more often throughout the year for more significant income potential while enjoying strong appreciation over time.
To ensure that you get off on the right foot, here are a few basics to consider when buying a vacation home as an investment property.
Know the Difference Between a Second Home and an Investment Property
Knowing the difference between the two will affect your taxes and mortgage amounts. Here are the two classifications of properties:
- A second home is a one-unit property where you plan to live or stay for part of the year. It is considered a personal residence. Regarding renting, the IRS considers the residence a second home if you use it for personal purposes during the tax year for more than 14 days or 10% of the days that you rent it out, whichever is greater.
- An investment property is owned for investment income, even if you use it for personal use now and again. There are no restrictions on the number of days that you can rent it out. This type of property allows for more tax deductions than a second home.
From a lender’s perspective, a mortgage for a second home is not all that different from that of your primary residence, which helps keep the rates low. For an investment property, you will face an issue of higher interest rates and a higher down payment of around 25% or more. Still, you can budget your purchase accordingly and choose from different mortgage types to help you meet your needs:
- Conforming loan: This is the easiest to obtain and has the lowest down payment, typically around 20%.
- Multifamily loan: This works for owners of multiple homes or units in a building. A portfolio loan is a typical loan under this category.
- Short-term loan: This loan supplies you with the cash that you need to purchase a property before you can gain long-term financing.
Is It Best to Have a Timeshare or Own a Vacation Property?
A timeshare, as the name suggests, is an agreement where you own a specific amount of time of a residence instead of owning the home outright. You will need to pay up front for the ownership (non-traditional mortgages are available), and you are required to pay annual dues. There is also a minimum period to own your timeshare, often 25 years.
Whether you can rent it out depends on the type of ownership (deeded vs. right-to-use) and other factors outlined by the timeshare company. Still, in most cases, you can rent it.
A vacation property is a home that you own entirely and doesn’t come with limitations on timing or the other mentioned factors. This makes a vacation rental the preferred choice as an investment property.
What Is a Good Return on an Investment Vacation Rental Property?
Typically, a good annual return is 10% on your investment on short rentals and between 5% and 10% for long-term rentals.
A few factors to consider in the math are:
- Mortgage costs.
- Utilities (even when the home is vacant).
- Property insurance.
- Property management costs.
How Much Should You Spend on a Vacation Rental Property?
The typical spending amount is 10% to 15% of your net worth on a vacation property purchase price, excluding your down payment.
Does It Make Sense to Invest in Rental Properties Out of State?
Investing out of state can be a smart move in any area of the U.S. if:
- The geographic area is a more affordable location to buy, both in terms of home costs and tax benefits. The lower price enables you to tap into additional rental and appreciation income more easily. You can also buy a larger home and reap the financial benefits when selling later.
- The operating expenses are low in that particular region.
- The market has a solid foundation for appreciation, such as strong overall demand and/or other outlining factors, such as population and job growth.
- You are looking to diversify your risk. Different areas carry different risks — and rewards!
- You use a local company to manage your property. Renting and managing a property can be a heavy load on your busy life. A property management company can take on the burden for you. At Cascara, we specialize in home rentals in Sunriver to make the management of your property easier.
How Do I Get Started in Rental Property Investments?
Now that you have a clearer idea of the factors worth considering before buying your home, here are a few steps to simplify buying and managing.
- Start by reviewing your potential ROI before you shop. Play with the numbers by reviewing factors like property values in the area, tax requirements (second home vs. investment property), annual rental pricing, and potential costs for insurance, repairs, management, and utilities (both with and without renters). Look at all the pricing annually, not just when the area is in peak season.
- Determine your final budget and financing options.
- Search for the highest-demand properties for your budget. Prioritize using a real estate agent with expertise in the area.
- Re-crunch the numbers again based on homes in the immediate area of the one that you want.
- Make an offer.
- Once the home is yours, start managing your property. Finding tenants, collecting rent, and maintaining the property is often a great deal of work, especially if you don’t live nearby. This is why working with a local property management company is a smart choice.
Cascara Vacation Rentals
If you are looking to invest in a vacation rental property, Sunriver, Oregon, is an excellent place to do it, and Cascara Vacation Rentals is your reliable choice. We have over 35 years of experience offering vacation rentals in Sunriver. We understand the area inside and out and know what guests look for in their vacation rental properties. This includes services like guest/concierge services and special deals for activities throughout the Sunriver area.
Your guests will have a clean and comfortable place to stay, and you will have a well-maintained home ready and waiting for you when it’s your turn to relax.
Click here to learn more about our services and experience how we present your property.