15 Things to Consider Before Renting Out Your Vacation Home

Owning a vacation home is a dream for many people. And you may be tempted to finance your getaway place by buying a property and renting it out.

While this may seem like a good plan, there's a lot to think about before deciding you're OK with having tenants in a home you own and plan to spend time in.

So, is it right for you? Here are 15 things you should consider before deciding to put your vacation property on the rental market.

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Many desirable communities in popular vacation destinations have homeowners associations (HOAs). These HOAs exist to help keep property values high and to provide and maintain shared amenities that attract vacationers, such as pools, clubhouses, and golf courses.

Unfortunately, HOAs may also come with restrictions, including limitations on when and if you can rent your home. If you're hoping to start finding tenants, be sure the community your house is in will allow it.

ALSO READ: HOA Fees: What Are They and What Is Covered

HOAs are not the only challenges facing would-be landlords. Some townships have banned short-term rentals or imposed other limits, such as restricting the number of days per year you can rent your home.

It's important to research all restrictions and ordinances before renting out your property so that you don't run afoul of the law.

In some locations where rental properties are not banned outright, authorities have tried to discourage them -- or to profit from them -- by imposing different tax rules.

For example, you may be subject to non-resident property tax, which is calculated at a much higher rate, if you rent your home out for more than a certain number of days per year.

These tax rules can eat into your profits and, sometimes, make owning your home unaffordable even with rent coming in. Be sure you know them, so you don't face a huge surprise when you get a big bill.

ALSO READ: Real Estate Taxes: Your Complete Guide

There are various other state and federal tax rules that can apply to landlords, as you'll have to declare your rent as income and may wish to deduct certain property expenses if you meet the guidelines to do so.

If you are not treating your home as your primary home and/or are renting it out, this could also affect your ability to avoid capital gains taxes if you make a profit on the sale of the vacation place.

Be aware of these issues up front and consider whether you will need special help from an accountant after you begin your rental career.

If you want to rent out the home part of the time and use it during other times, consider whether this will be possible or desirable.

You won't be able to make a spur-of-the-moment trip to your own house if you have renters there, and you may need to "book" your own property months in advance to secure the weeks you want to stay there.

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You'll need to make the house available most of the time to generate significant rental income. This means you could spend most of the year dealing with any hassles related to the property rather than enjoying a leisurely vacation there.

You will also need to consider whether you want to do long-term or short-term rentals. Short-term rentals can often be more lucrative in popular vacation destinations but come with added obligations and are more likely to be restricted.

ALSO READ: REITs vs. Rental Property: Here's Which Strategy Has Made Me More Money

Many areas where people vacation are seasonal. After all, not many people are likely to rent out a Maine beach house during the dead of winter or a Florida one during the heat of summer.

You may want to be in your property during the exact weeks when you're more likely to find renters and to be able to charge a premium. So, consider whether you can arrange your schedule to both enjoy your home and earn income from it.

One big benefit of owning a vacation home is that you do not need to pack all your personal possessions when you visit. You can keep stuff you need at the vacation rental home and just show up.

This isn't possible if you have renters, though. You'll need to limit what you keep there to things you don't mind renters using and put all your personal belongings away before tenants come. This can be a huge added hassle you need to make sure you are ready for.

ALSO READ: 7 Hidden Expenses You'll Face When Moving

Renting a property requires a lot of work. You need to market it, find tenants, respond when renters have problems, and make sure the home is cleaned between guests.

If you don't have the time or interest or are far from the vacation home, you may need to hire a property management company. This comes at an added cost, and more restrictions could be imposed by the company with regards to what you can do with your own property.

If you want to find renters, your house will need to get good reviews online. That means you need to respond quickly and effectively when tenants have problems.

You also need to deal with issues that your renters cause, such as broken furniture or a clogged toilet.

Managing these problems takes time and money, even if you hire a rental management company to take care of many of them for you. You'll still have to pay the company and make sure they do their jobs properly if you aren't DIYing it.

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If you want to have the most success with renting out your vacation home, you'll obviously need to live in a place people want to visit.

If you prefer to avoid touristy spaces and pick a home that's comfortable for you -- even if it's not in an in-demand area -- this could affect your ability to find tenants and turn a profit.

ALSO READ: 10 Best Cities to Invest in Rental Properties in 2022

You and/or your property management company will have to decide how much to rent your property out for. This decision can be difficult because you don't want to undervalue your home, but setting the rent too high can reduce demand.

However, setting the rent too low may attract tenants that could cause more problems, such as broke college students looking for a party house.

The rent you set also determines your likely profit, so you'll need to make sure the numbers make sense and that you can either break even or turn a profit.

If there are tons of rental properties in your location, you may need to do more creative marketing or set the price lower to attract tenants. This can increase costs and reduce profits.

On the other hand, if your home is in an area where no one has rental properties available, you need to make sure there isn't a reason for that; for instance, people don't want to rent there, or restrictions make renting out homes impossible.

ALSO READ: 5 Explosive Vacation Rental Markets To Tap Into Before Summer

Renting out your home obviously means there will be strangers in it. Some people find this very uncomfortable, especially if it is a property that you will use for part of the year. You need to think about whether you're OK with actually inviting others into one of your private spaces.

Finally, you'll need to think about whether you can afford the vacation home and/or whether it makes financial sense to buy it if you won't rent it out.

There are definitely downsides to opening your space up to tenants, but if doing so is the only way to make the math work on buying it, you may decide it's worth it.

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The reality is that renting out your vacation home will ultimately make you a landlord -- and you'll have to cope with the hassle that entails while reaping the perks from real estate investing.

You need to think this decision through as it could have a major impact on your lifestyle and finances in the long run. Considering these 15 issues will help you to do just that.

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