With interest rates being at an all-time low, many homeowners and investors are considering purchasing a second home or vacation home as an investment in order to take advantage of the larger purchasing powers available to them amid the Coronavirus (COVID-19) health pandemic.

While it is currently a seller’s market in most parts of Florida, it is still, for the most part, an excellent time to consider purchasing a second home/vacation home. Notably, in places like Florida, where there is always a steady stream of tourists, visitors, and part-time residents, investing in a vacation property is financially beneficial; especially if you’re willing to hold onto the property for a longer period of time (i.e., ten years), 

In any event, purchasing a vacation home is not a task that should be taken lightly and must be carefully weighed against your investing goals as well as your current risk tolerance. This is especially true given the fact that the current Coronavirus (COVID-19) health pandemic has created uncertainties in the real estate market. 

Below we will discuss the pros and cons of purchasing a vacation home in Florida to help further guide your decision. 

Pros to Owning a Vacation Home in Florida

Tax Deductions

It’s no secret that one of the primary reasons investors purchase real estate is because of the lucrative tax deductions. While it is true that the Tax Cuts and Jobs Act of 2007 (TCJA) changed eligibility for certain real estate tax deductions, there are still many lucrative tax deductions that investors can take advantage of when purchasing a vacation home. For example, investors and vacation homeowners may still do deduct their mortgage interest from their taxes. 

Generally speaking, single and married couples can deduct up to $750,000 in full interest. This deduction applies to any residents whether or not it is your first or second or vacation home. The previous limit was $1 million and mortgage debt but only applied to loans taken out before December 16, 2017. Keep in mind that the amount that you may deduct depends on how often you personally reside in your residence.

Additionally, vacation homeowners may deduct 100% of the cost of repairs, maintenance, and improvements on their taxes, as long as they don’t reside in the property for more than 14 days out of the year. 

Additional Income 

Owning a vacation home in Florida comes with the benefit of being able to earn additional income from renters. This includes the luxury of using your property as a short-term vacation home. Specifically, owners can list their property on sites such as Airbnb and VRBO. Since the weather in Florida is beautiful year-round, owners can take comfort in knowing that they will receive a steady stream of income throughout the year whether they choose to rent their property short-term or long-term. 

Property Appreciation & Profits 

Owning a vacation rental in Florida is a wise financial decision because, in general, the property will appreciate in value over the years. This is especially true if the homeowner holds the property for longer than 10 years. Currently, properties in Florida appreciate at a rate between 6-8% annually. This trend is expected to continue, despite the current health pandemic. 

A Second Home for Family and Friends

Lastly, it is extremely convenient to have access to a vacation home for you and your family when you need it. Having your own property allows you to reschedule trips when your schedule changes and not have to worry about where you will stay. To keep your vacation home flexible and accessible, you should consider renting your home on a short time basis so that it is always available when you need it to be 

Cons to Owning a Vacation Home in Florida 

It’s Expensive to Purchase & Own 

Owning a vacation home is expensive, especially initially if you require financing from a bank or mortgage lender. Financing a second home is a lot tougher than financing a primary residence. This is because there is more risk involved with owning a home that is not your primary residence. Consider the following, should you fall on hard financial times, you’re more than likely to stop paying the mortgage on your second home/vacation home first. As such, when you’re shopping around for a mortgage, you will find that most lenders require a larger down payment of up to 50%.  

Additionally, if you stay in another state or over 50 miles away from your property, you will have to hire a property manager or real estate agent to manage your property, which is another ongoing expense of owning a vacation home.  

Unexpected Repairs 

Part of the headache of owning any property is that you will unexpectedly have to make repairs. This can become a financial headache if you don’t have sufficient reserves or savings to pay for the repairs. As such, vacation homeowners should plan for unexpected repairs. 

Wear and Tear on the Property 

Due to the constant influx of tenants in your vacation home,  the risk of damage is higher compared to a traditional rental. Since you may sometimes rent your home back to back, you may not find out about repair issues for a while. Even worse, you probably won’t be able to pinpoint the person who caused the damage. 

Overall, while there are some cons to owning a vacation home in Florida, the benefits typically outweigh the drawback. Florida is unique in that the weather is sunny year-round, and the state enjoys steady tourism. Additionally, Florida has been designated as an official retirement destination which also increases the number of visitors to the Sunshine State. Vacation rentals rarely, if ever, depreciate in value in Florida. Further, because vacation homes can be rented on a short-term basis, this opens up another income stream for vacation homeowners in Florida. If you are considering investing in Florida, do your research and due diligence to figure out what is your best option.