By Renee Hanlon

Vacation Homes — Take Advantage Of Home Prices

With the housing market down, now may be a good time to think about buying a second home. Investing in real estate still can be profitable. Not only are the current prices low but if you can turn it into a rental, you could end up making a monthly profit on the home — depending on how much it is rented. To get the best possible deals, check with the banks for a listing of foreclosed properties. Just be careful of the condition that some of these properties may be in.

Since it would be much riskier to invest in real estate with the idea of flipping for a profit right now, keeping a property long term as a rental is ideal. When the market goes back up you can decide if you want to hold on to the rental or sell for a profit at that point.

To make your vacation home pay for itself, rent it out as often as possible. This doesn’t mean you won’t get to use it yourself. Vacation rentals can take in a high weekly rent, especially if the home is located in a prime area. You may even want to consider buying a vacation home in another state where housing prices are extremely low such as Florida, California and Arizona. Since these are also popular vacation areas, your potential for profit is greater, although hiring a property manager would probably be necessary and should be factored in.

You will want to take advantage of this property as much as possible. Besides the income you will bring in from rent, there are some expenses that you can offset against this income.

Offsetting expenses:

• Deduct mortgage interest expense — you must use the home 14 days out of the year, for personal use, or 10% of the total days the home was rented out — whichever is longer for the home to qualify as a second home. You can only deduct the mortgage interest expense if your home qualifies. This is an expense that can be deducted regardless of the amount of rent you bring in, it is simply a second home expense.
• Obviously there will be rental income to claim. You can deduct any expenses related to the property though at the percentage the home was used for a rental. So, if the home was rented 85 days in one year and you used it 15 days, the percentage would be figured at 85/99 (total days of use) or 86%. If you have a net profit, you can deduct all of your expenses. If you have a net loss, you are limited. You cannot claim a loss over rental income but you can carry over the loss to the following year. This is because rental expenses cannot offset other areas of income.