With the harsh winter weather increasing throughout the country this January, it’s vacation time for many snowbirds and time for many in vacation areas to evaluate their options for second properties. With this, it’s important to know the differences between a vacation rental and an investment property and what it means to own one.

What is a vacation rental?

Vacation rental is a term used to describe the renting out of a privately owned furnished home, apartment or condominium in a short-term timeframe. Typically with a vacation rental, it is for rent by the owner and usually on a weekly basis, although some offer nightly rates, similar to a hotel, or even monthly rates. Travelers often use vacation rentals as an alternative to hotels in order to get a more authentic experience with their travel destination. Vacation rentals are constantly rising in popularity because of their ability to offer the traveller more space and more privacy for less cost than a typical undersized hotel room.

More an more people with second homes or properties in vacation spots are renting them out for periods of the year whether it be in the winter or during peak vacation times like during the December holiday season or in the summer especially around the Fourth of July. Another common time that people may rent out their properties could be at a time of festivities like a large sporting event near the home or college spring break times.

While vacation rentals continue to surge in popularity because of their affordability and the chance to live a vacation like a local, there are some things that renters should take caution of, and that owners should note. One of the most important is the fact that many travelers have to deal with booking a vacation rental and then learn that it’s significantly not as described in the advertisement for the rental. This is why travelers should be dependent on rentals with reviews and owners should welcome and listen to reviews done on their rental in order to improve their property and avoid false advertising claims.

Investment Property Definition

An investment property is the purchasing of a property (house, apartment, condominium) purely seeking profit gain. This could be by purchasing a retail estate property, fixing it up and then ultimately flipping it for profit, or purchasing a property look to rent it out for most of the year. Especially with tax purposes, if the owner’s time spent in the second property is limited to 14 or fewer days or 10 percent of the time it’s rented out to other people, it’s considered a full-time rental or investment property where the ultimate goal is to generate profit.

Vacation Rental vs. Investment Property

Basically with an investment property, the goal of owning the property is purely to use it to gain profit. With owning a vacation rental, it’s a property that is usually a vacation home or second home that the owner can rent out at short term for vacationers or event goers when the owner is not using the property.

A lot goes into owning a second property in terms of taxes and loan options so do your research before purchasing a second home or an investment property.

This article was written by Cameron Lafontaine.