Investing in a recreational property, like a vacation home or a cottage, can offer the potential for rental income as well as provide a personal getaway location when it is not rented out. To maximize a vacation home’s investment potential, consider these key tips:
Choose a High-Demand Location
Location is critical. Choose an area that attracts tourists and has strong demand for vacation rentals. Is the property close to natural attractions and amenities? Is it easily accessible? These are factors that can influence the property’s appeal and rental income potential. Look for locations with a mix of seasonal and year-round attractions to maximize occupancy throughout the year.
Assess Rental Potential
Evaluate the rental potential of the property by analyzing similar rentals in the area. Look at occupancy rates, rental prices and guest reviews to gauge how much rental income you can realistically expect, and assess whether the property is a viable investment. Online rental platforms and local property managers can provide data on rental performance and demand.
Prepare for Seasonal Variations
Recreational properties often experience seasonal fluctuations in demand. Be aware of how different seasons affect occupancy and rental rates. The owner of a mountain property near a ski resort can charge more during the winter, while the peak season for lakefront properties is summer. Research historical rental data and adjust prices accordingly. Take advantage of higher income potential during peak seasons to compensate for periods of low demand, and use lower prices during off-seasons to attract visitors. Be aware that you will have fluctuating income from a vacation rental property, and budget accordingly.
Check Zoning Laws
Ensure that the property is zoned for rental use and that there are no restrictions on short-term rentals in the area. Some regions have specific regulations governing vacation rentals, including licensing requirements and occupancy limits. Compliance with these rules is essential in order to avoid legal issues.
Consult with local zoning authorities and a real estate attorney to verify that the property meets all legal requirements for rental use.
Prioritize Proactive Maintenance
Recreational properties often require more maintenance than traditional investment properties, especially if they are located in remote or rural areas. Factor in the cost and logistics of maintaining the property, including cleaning, repairs and managing utilities. Be proactive, as deferring maintenance can lead to more costly issues down the road. Developing a comprehensive budget helps ensure necessary work is completed promptly.
Establishing agreements with local service providers for routine maintenance and ensuring timely, dependable repairs are completed when needed can be highly beneficial.
Shop Around for Financing
Lenders usually require larger down payments or impose higher interest rates on loans for vacation properties. A mortgage broker with experience in recreational property financing may be able to find you better loan terms. Explore different financing options thoroughly before making a decision.
Consider Tax Implications
Rental income from recreational properties and proceeds from sales have tax implications. Understand how rental income is taxed and what deductions you can claim for expenses like mortgage interest, property taxes and maintenance. Consult with a tax advisor to optimize your tax strategy and have an accurate estimate of what you will pay in annual taxes.
Be sure to keep detailed records of all income and expenses related to the property to simplify tax reporting and maximize deductions.
Plan Ahead
As with any investment, planning ahead, evaluating your goals and performing thorough due diligence is crucial. Assess all aspects of buying and managing a recreational investment property before committing, to ensure the property meets your financial and personal goals. If you intend to use the property for personal vacations, not just for rental purposes, plan how this will affect your income. Consider using it only during the low season or when it is not booked, as this will maximize the property’s income potential.
Benefit from Trusted Expertise
A recreational property is a significant investment and requires thoughtful planning. The guidance of experienced professionals can make all the difference. RLP InvestorsEdge™ is a real estate investment platform by Royal LePage®, designed specifically to support Canadian residential real estate investors. Agents receive exclusive and in-depth Masterclass Series training by Broker’s Playbook™, so you know they have the tools and insights needed to deliver detailed analysis and personalized advice.
Investors can expect to receive valuable support throughout the process. Backed by strong negotiation skills and proven marketing strategies, RLP InvestorsEdge™ experts can help you secure favourable terms and stay competitive in any market. Exclusive access to early listings gives you a further critical edge. Recreational properties require a nuanced investment strategy. With their unique considerations, having a knowledgeable partner is key. RLP InvestorsEdge™ connects you with experts who understand these distinctions, so you can invest with greater confidence, clarity and purpose.