A vacation home is usually a second property or more that is owned by a real estate investor. As part of its definition, a vacation home is not its owner’s primary residence. Instead, it is used for recreation purposes such as holidays, events, and vacations.
Vacation homes can be any type of property. It can be a single-family residence such as a lakeside villa or cottage in the woods or a multi-family residence such as a penthouse in a large city. Typically vacation homes are located some distance away from the owner’s primary residence.
As a vacation home is only used sparingly by its owner, many tend to rent out the property when it is not in use. That way the property generates passive income for the owner. Occasionally the owner prefers to leave the property unoccupied when it is not in use. Vacation homes are typically rented out by their owners via online short-term rental services in modern times.
For example, a family from southern California may purchase a vacation home in Colorado for an annual winter ski vacation. When the vacation is over or the family isn’t residing in the property, it is rented out to a tenant.
While many vacation homes are rented out, many lenders would consider it a different type of property than investment rental property. Mortgage rates for vacation homes tend to be higher than a standard mortgage for a residential property or buy-to-rent investment property. This is due to higher default rates, and risk on the lender’s side. There may also be special tax considerations for vacation properties in the United States.