6 Reasons You Should Buy a Vacation Home Post-COVID
I’ll spare you the long winded mansplaining. Interest rates are record low, making debt dirt cheap and remote work is the new normal.
If you’ve ever wanted a cabin in Southern California now is the time to grab it or anywhere rural for that matter.
The last affordable places such as Cedarpines Park, CA will be as expensive as Big Bear and Lake Arrowhead soon.
Here are the top 5 reasons I favor this investment strategy. It’s not for everyone.
1) Tax Write Off to Relax & Share
Your home is considered a rental property — and not a personal residence — if it is rented for 14 or more days per year, and if your own personal use of the property does not exceed 14 days per year, or 10% of the number of days that the home was rented.
What this mean: if you stay more than 10% of the days rented, it’s still considered a personal residence.
Which means. The total of state and local taxes eligible for a deduction — including property and income taxes — is limited to $10,000 per tax return, or $5,000 if you’re married and filing separately.
So this allows you to max out the $10,000 if you’re already paying around $3,000-$4,000 a year on your primary house.
2) 15 Days a Year You Get Unlimited Tax Free Profit
You can rent your home for fewer than 15 days during the tax year without having to report the income to the Internal Revenue Service. The house is considered a personal residence, which means you cannot take deductions for rental expenses. But you can deduct mortgage interest and property taxes as you would with any home.
This special rule applies even if you rent your home for $10,000 per night. Section 280A(g) of the Internal Revenue Code says the money doesn’t need to be included in your gross income, provided that the home was rented for fewer than 15 days per year.
3) A SECOND Mortgage Interest Deduction up to $750,000!
What more is there to say. You get another huge interest deduction on your taxes for having a second home and your mortgage interest deduction on your first home. Married or single you get this. The up to a million rule will come back in 2025
4) Debt Loaned to Buy Stock Can Get Margin Called During Volatile Periods, Not Fixed Mortgage Debt
If you’ve Never been margin called. You’ve also never logged in an trading account to see a large negative balance you have to cover because of a market fluctuation. And when you just don’t have to money to cover the new required account balance you’re forced to cover at a loss or cover and still be in huge debt to be settled in 2–3 days. Or force liquidate your other holdings at a loss or profit to cover the debt plus a capital gains trigger.
With fixed mortgages on first houses as well as second houses. The debt doesn’t get called by the lender to be paid back because the lender thinks you’re going to get foreclosed on because what you paid for the house is way higher than the current market price. Callable mortgages do exist but I recommend 30 year fixed under 3.5% is great in a second home.
5) Another Asset to Retire On
The goal is to keep buying places. Buying places we enjoy vacationing. We know the trick is to buy with cheap debt (the low rates won’t last forever with huge recent inflation gains). Keep the payments low.
Once we have a handful of these properties. We can start living where we want and paying $10,000 a month for a rental and it won’t be difficult. Because our other properties are safely and securely footing the bill.
6) You Can Exchange Your House With Other Vacation Houses
We haven’t done this yet. One day we will. You can go to a website like HomeExchange, find a place anywhere in the world and see if the host of it will agree to stay at your vacation home and you stay at their vacation home. Services like HomeExchange don’t allow you to use your primary home to do this: exclusive.
So..
Now is the time to buy to get richer in 2021 and richer for many years to come.
