Circumstances made it a better choice than selling a house in a down market, originally.
The risks are there, and the rewards can be enormous.
There is the easy way and the hard way. The easy way is to pay a property manager lots of the take, and let them do most of the work. A good manager and a great vacation rental makes for “good cash flow”. It takes research, and investment, and you have to be willing to admit that the manager earns the money they make, or it will drive you nuts.
I personally would not set out to buy rental property just for the sake of doing that. I would want to be very clear on my goal. Is this a house I will move into eventually? Is this a place I am buying for the re-sale? Understand the IRS rules, and be prepared for market ups and downs.
A good rental is a year round rental, where you break even, if you have a mortgage. Breaking even means after you’ve paid the mortgage and the upkeep, and gotten your tax credits, and paid for your trips to do maintenance, you are even.
Some people want positive cash flow. That’s a nice idea, and in some parts of the world it can work. That tends to mean a lot of money into the initial investment.
It also helps if you are good at letting go. If not, owning a rental property will teach you to do that. Or you will go nuts.
My experience with long term renters was mixed. I worried about not finding renters – it was easy. I worried they would not pay their rent – they always did. I did not worry they would damage the place – they did. But it worked out much better than selling in a down market.
As for vacation renters, the experience as to the people is better. They are respectful of the place they stay, and fall somewhere on the spectrum of being picky and critical to being deeply appreciative, with the majority loving the place and vowing to return. Repeat business does happen, but most of the business for me has been original first timers.
Finally, vacationers fall into economic & emotional classes. People who want to pay too little are not as appreciative or respectful as those who expect to pay what a place is worth. By too little, I mean those who ask for deep discounts, like half off. The worst vacationers I’ve had are those who want to know about every detail up front. Tons of questions tends to mean they are OCD and the place will never be up to their expectations once they get there.
The real up side? You trade a place you can’t live anymore for a place you long to go to, and let the vacationers pay for it when you’re not there. And someday, if you plan well, you get to move there and let go of your working life, because the place will have been paid for!
