3 Reasons You Should Buy a Vacation Rental Home Instead of a Home for Yourself

By Realty Times Published Feb 3, 2022 02:00 pm

When I was looking to buy my first home, I was of course super excited to pick something out that I loved. To live in my own home and have a proper investment instead of throwing money away each month on rent.

But a funny thing happened. I said no to myself and what I wanted. In a way.

Nashville at that time was blowing up. Tourism was rising and the prices on real estate were rising at an unusually high rate!

So, I realized I had a chance to do something different. Did I really want to just buy a home I could live in, or did I want to take advantage of the moment and buy something that would make me money?

So that’s why I decided to buy a home that could be a short term rental property. If it didn’t go well, and it didn’t make money I could just move in!

It was one of the best decisions I’ve ever made! I ended up making a ton of profit on the home and I was able to buy another home just a year later.

Here are 3 reasons you should buy your own vacation rental home!

1. It’s your chance to make money

Purchasing a home for yourself is the biggest investment you will ever make. So why not make it count? Buying a home for you means a big monthly payment you make with a small amount going to the principal and a large amount going to interest.

It is better than renting, but it doesn’t net you a whole lot. Whereas, purchasing a vacation rental property in a booming tourist destination could actually make you money.

So, each month on top of the mortgage payment being covered by other people, meaning you are purchasing that home for free, you also should be making a profit.

Passive income for yourself, that you can use to save up for another home! Which leads me to point #2.

2. You can buy second house

If you buy a house for yourself, that’s it. It’s done and you won’t have the loan-to-debt ratio to purchase another one.

BUT, if you first purchase a rental property, in two tax return years you can show income from the property that can be used to get you another loan approval. A regular rental home that isn’t AirBnb would require even less tax returns.

If the vacation rental property is bringing in twice the mortgage amount each month, then when you look to get a loan to purchase another home it is almost like that debt doesn’t exist.

Because the home is bringing in extra income, it cancels out the debt, leaving you room in your debt-to-income ratio to get approved for another mortgage loan.

But if you had just purchased a home for yourself that wouldn’t be an option.

3. It creates a passive income business

The best kind of business you could have for yourself is one that doesn’t require a lot of work. One that creates passive income, meaning the income just keeps coming without a lot of activity from you!

As long as you have a good cleaning crew in place and someone to work on maintenance, there isn’t a lot of heavy lifting on a vacation rental home once furnish it and get it listed.

So, it’s the perfect business to create that still allows you to work a full-time job, or run another business!

If you don’t have enough saved up yet for the down payment, keep saving, I promise it will be worth it!