Passive or not, Income is Income: With interest rates where they are, is now the time to look for a vacation home or rental property? Adding a second home can provide financial benefits outside of the enjoyment of just spending time there. The amount of time that is spent at the property will determine whether it is classified as a rental or personal property. These benefits include: tax deductions, new source of income and building equity.
Tax Deductions: While you should always consult your tax or legal professional about your individual situation, there are several ways that a second home/rental property can help with taxes. A landlord is allowed to deduct expenses associated with managing the property whether that be utilities, taxes or necessary repairs.
Income: Another is rental income or passive income, which is defined as cash received on a regular basis with minimal effort requiring the recipient to maintain it.
Equity: As rent is collected and the mortgage is paid, equity is being accrued. Over time as the property is paid off, it shifts from being a liability to an asset as you actually own more of it. Most of the time vacation homes are located in desirable areas where you want to live vs. where you need to live. This can result in longer ownership period than a primary residence, which translates into a longer period to build equity.
While being a landlord isn’t for everyone it definitely has its benefits and over time can be fruitful.