Editor's note: As a special feature for April, TheStreet.com offers a 20-story series on virtually everything about real estate. This installment is Part 15.Buying a vacation house is a huge investment, but with the right planning, you may be able to offset at least part of the cost by renting it out when you're not using it. One of your biggest considerations should be whether you want to hire a property management company or rent and list your vacation home yourself -- this decision is the one with the most money at stake. Hiring a property manager eliminates the inconvenience and ensures that a vacation home lives up to its name. There's no work and no headaches. If you live hundreds of miles away or use the house only a few weeks of the year, it may be the most practical option. On the other hand, the tens of thousands of dollars you could end up paying a management company buys an awful lot of aspirin. Vacation property managers generally charge around 30% of rental income for their services, and up to twice that in major resort areas. With a ski property at a popular mountain bringing in up to $80,000 in annual rental income, there could be a lot of money at stake. Christine Karpinski, author of
Karpinski says that in determining how to get a vacation house to pay for itself, the magic number is 17. In a typical real estate market environment, if the monthly mortgage payment -- principal, interest, taxes and insurance -- is less than or equal to a week's worth of peak-season rent, renting for 12 weeks covers the mortgage. Generally speaking, renting for about five more week will offset all other costs. Another cost to factor in if you're not using a property management service is advertising. The Internet has made advertising a rental home exponentially more affordable. For between $200 and $300 a year, sites such as
www.vrbo.com, www.cyberrentals.com and www.homeaway.com create and host a unique homepage for a property, beaming rental information and pictures of the property to a worldwide audience. Plus, rather than leaving renter screenings to an ambivalent property manager, renting by owner allows you to make a personal connection. "People have been really burned by property managers," Karpinski says. "It's the relationship that happens between the property owner and the renter. When you talk to somebody on the phone, you realize it's their own house, and you're going to take better care of it than if you walked into it and presumed it's owned by this property manager or a big company that owns 500 or 1,000 places."
Taxes are the other major consideration when determining the cost of renting your vacation house, and parsing the language is important. There are several categories to consider. If a home is rented for fewer than 15 days during the tax year, rental income does not need to be reported, and no rental expenses are deductible. If you rent your house for 15 days or more, you must report all of your rental income. And if you make a net profit -- that is, if your income exceeds all expenses, including depreciation -- the expenses may be deducted. But you may not be able to deduct expenses if you experience a loss, however. Keep in mind that any deductions you take must be divided into two percentages: the amount of time the owner used the house, and the number of days it was rented. On the other hand, if you rent your vacation home for fewer than 15 days, you are not eligible to deduct any expenses as rental expenses, and cannot include rental income in your reported income. Don't forget to factor in expenses not directly related to the house. There's the time and money it takes to clean a house for the next renters, or hiring a cleaning company to do the same. Other costs can include lawn care, security, condo association fees and insurance. It's also important to be mindful of sales tax, which is required in most states. For around $100 a year,
www.hotspottax.com will handle all hassles, since most popular vacation locations have at least two separate taxing authorities. (Florida, for example, charges a state sales tax, a county surtax and a county tourist development tax.) With the appropriate planning, a vacation home is not only affordable and in financial reach, it can provides a healthy additional income. Coming up next: the hottest vacation markets.