Is it Time to Sell Your Vacation Home?

The travel industry is one of the major sectors that’s been hit extremely hard by the COVID-19 pandemic. Today, it’s hard to know how long it will take for summer travelers to be back in action and for the industry to fully recover. Homeowners who rent their secondary properties on their own or through programs like Airbnb, which has over 660,000 listings in the U.S. alone, have been impacted in this challenging time. Some of these homeowners are considering selling their vacation homes, and understandably so.

A recent CNN article indicated:

“With global travel screeching to a halt during the pandemic, a number of Airbnb hosts are planning to sell their properties…These desperate moves come as hosts face the possibility of losing thousands of dollars a month in canceled bookings while bills, maintenance costs, and mortgage payments pile up.”

If you’re one of the property owners in this position, you too may be feeling the pain of decreased travel, especially as we prepare for the typical busy summer vacation season. A recent survey notes that 48% of Americans have already canceled summer travel plans due to the current health crisis. In addition, 36% indicated they don’t have vacation plans, and only 16% said they did not cancel their summer travel.

The same survey also asked, “How long will you wait before traveling again?” Not surprisingly, only 29% of respondents are planning to travel within the next 6 months. That means 71% are putting their plans on hold for at least 6 months, or are still unsure about future travel. That can continue to add to the significant income loss that many property renters felt this spring.

If you’re considering selling your rental property, know that there are two key factors indicating that selling your vacation home now may be your best move as a homeowner.

1. Inventory Shortage

The inventory of overall homes for sale is well below the demand from potential buyers, so many eyes may be searching for a home like yours. According to the National Association of Realtors (NAR), total housing inventory, meaning homes available to purchase, is down 19.7% from one year ago (see graph below):

Inventory across the country continues to be a challenge, with only a 4.1-month supply of listings available at the current sales pace. For a balanced market, where there are enough homes available for interested buyers to purchase, that number would need to bump up to a 6-month supply. This means we don’t have enough inventory for the number of buyers looking for homes, so selling in this scenario is ideal. Buyers are looking now, and some vacation homes make a great primary residence or second home for those eager to escape from more populated urban areas.

2. Home Prices

The lack of inventory is also keeping homes from depreciating in value. Today, prices are holding strong and experts forecast home price appreciation to continue throughout this year. Selling your home while prices are holding steady is a sound business move. You’ll likely have equity you’ve earned working for you as well. If your home has been vacant for the past few months, the forced savings you have built in your equity may help balance out possible rental income loss due to the slowdown in the travel industry.

Bottom Line

We don’t know exactly when heightened summer travel will return or what it will look like when it does. If you’re considering selling your vacation home, contact a local real estate professional to determine your options in the current market.

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3 Things to Think About When Buying a Second Home

Some rich, urban-dwelling millennials are swapping out starter homes for vacation homes: They're renting in cities and buying country houses because they can't afford to buy in their city's expensive real estate market, according to Farran Powell of The Street.

That's certainly not the only reason why people are buying vacation homes, and millennials aren't the only ones to favor them. But buying a second home isn't a decision to be taken lightly.

"It's important to understand that second homes are different," Jean Chatzky, financial editor of NBC's "Today" Show, wrote in " Women with Money," her latest of 11 books.

There are three reasons why one might be considering a vacation home, according to Chatzky. Here's what you should consider before making the leap.

Read more: Millennials are making 3 key decisions that are wiping out the starter home — and it's changing what homeownership in America looks like

1. You want your own space in a place you visit often — but how often do you really visit?

Chatzky and her husband bought a second home in Long Beach Island, New Jersey, which they use every weekend from May through early September.

But even if you'll only use a vacation home part-time like Chatzky does, a house is still a house. Bills — including mortgage, HOA dues, utilities, cable, etc. — are still year-round responsibilities, Chatzky said. If you live far from your second home, you'll also need to pay someone to check in on the house, she added.

Some vacation homeowners also feel guilty if they want to vacation elsewhere — it can be hard to justify paying for a trip when you already have a place to visit, Chatzky said.

She advises giving the idea of a second home a trial run. She and her husband rented in Long Beach Island for four consecutive Augusts to determine if buying a home there was worthwhile.

2. You're thinking about retiring in your vacation home — but will it fit your retirement lifestyle?

Dipping into the real estate market before actually retiring may be a wise move.

"Buying a retirement place before you retire has financial benefits," Chatzky wrote. It's easier to qualify for a mortgage while employed, and you'll get a head start on paying it off; you'll have time to settle into your place and make any necessary renovations; and you'll be able to determine the cost of living in the area, she said.

"Road testing a second house you plan to use for these purposes is even more important than road testing a house you plan to vacation in," she wrote, adding that the road test should be longer than a few weeks or days. "If it still feels like a vacation, you haven't stayed long enough."

During this road test, you should consider medical care access, services, culture and entertainment, transportation, and size of the home before purchasing, Chatzky said.

Read more: The 10 best places in the US to buy a winter home right now, ranked

3. You want to make extra money — but have you considered tax laws?

The advantages of having an extra cash flow through rental income is often what appeals to millennials buying a second home instead of a primary residence. They're using these homes to build wealth and rent them out when they're not living in them, Powell reported.

"With the rise of sites like Airbnb, HomeAway, and VRBO, making some extra cash by renting out your vacation place has never been easier," Chatzky wrote. "But that doesn't mean it's easy."

For one, there are tax laws. If you rent your house for 14 days or less, you don't have to report the rental income on your tax return; if you rent it for longer than two weeks, the IRS deems it "a business for tax purposes," — but how the IRS treats it as a business varies, depending on how, you, the owner, uses it, Chatzky said.

There are also other things to look into, like peak rental times, HOA rules, sales tax laws, and possible business permits, she added.

"Keeping the place rented means scouring the market to stay on top of competitive pricing, making sure it's clean and in order before the next renters move in, being responsive to email queries, and dealing with problems as they arise," Chatzky wrote. "In effect, you either devote a big chunk of your time to managing this property or hire someone to do it for you."

By Hillary Hoffower

Business Insider