Can you stay in your own vacation rental property?

Question

My wife and I are considering purchasing a small home or a condo in Panama City Beach, Florida. Basically, we see it as a decent way to purchase a vacation home that we'll use more when we're retired, maybe playing snow birds in the winter, and let rental fees pay for most or all of it.

My wife, who admittedly hasn't spoken to any realtors or property management professionals yet, read somewhere on some forum or other, that you and your family, cannot stay in your own vacation rental. Has anyone heard of this or does anyone know what this refers to? I know there are a lot of hotel/rental laws that apply to vacation rentals, and that we have a lot of research to do before we're ready to do anything, but this seemed like it might be a big one to get answered early.

Thanks.

Mark S. · Answer

@Marlin Followell She's probably reading about the 14-day stay limit for it to qualify as a vacation rental for tax purposes. I believe if you stay for a total # of days longer than 14 over the course of a year, it doesn't qualify for the same tax strategy and instead is classified as a second home.

Luke Carl · Answer

@Marlin Followell. Maybe she read one of my many rants that says “you can’t stay in it if you want to make money” which is true. Staying in your own condo costs you the same amount as renting the one next door while yours has guests in it.

Jon Crosby · Answer

@Marlin Followell It's either the 14 day tax rule limit OR there are some property management companies that actually limit you ability to stay as part of their business model. Stay away from these type of property management companies as some of the more nefarious ones have used that rule to rent the property to their own personal circles claiming to reserve the time for potential dignitaries and other high net-worth individuals. When in reality they are utilizing your vacation rental for their personal reasons leaving you without that benefit...which for me is the main benefit of owning a VR...otherwise you might as well just get yourself a standard rental. ;)Cheers

Jason Goretzki · Answer

We have been looking at getting a Condo Hotel, & part of the allure is the build in management & booking by the split. In every unit that we've viewed, all we have to do is call the booking company & block off our time. Not sure who, or why anyone would care that you are staying in your own unit. That concept is admittedly new to me.

Chai Xiong · Answer

If you are managing it i don't see why not

John D. · Answer

Ideally you would get a premium for your place, because you are great at marketing it and have a great pricing strategy. And therefore rent it to others at a premium. And then rent someone else's place that is just as nice, but rents for less because they aren't as good at marketing or pricing. I only use our places when they are vacant last minute because in advance, it would typically be cheaper for me to rent something else that's comparable.

Marlin Followell · Answer

Yes, it's a business, at least until retirement time, and then it's still at least a part-time business. We just bought our first small, long-term rental home here in our hometown, and may buy another eventually. We'd planned to purchase two and it was with the thought of letting someone else pay for the place with rent over the next fifteen years or so. At that point, we have a nice little bit of extra income coming in every month during our early retirement years, or we have a place we can sell and make a decent little profit, with not much more than our down-payment invested.The vacation rental was just an idea that came into our heads after we'd gotten started. We figured the earning potential was at least a little more, potentially a lot more, plus we'd have a place to play, if we wanted to, years down the road.We're not expecting huge profits, or even any profits for a very long time, this is a long-term investment for us.Again, thanks to everyone for all of the advice and comments.

John D. · Answer

@Marlin Followell If you're good at what you do, and I hope that's the case if you are getting into this business and treating it like a business, you'll be 40% or so ahead of the pack. If its not a business or a serious concern to you, so be it.

Brandon Ingegneri · Answer

I would say yes, especially if it is owned with a third party entity. If is is an LLC it just flows through to your personal return, so I don't see the advantage of doing so. Additionally, why take money out of your pocket, run it through a business, and then pay taxes on it twice? If you want to just stay there, stay there and don't involve payment into the equation at all.

Marlin Followell · Answer

Good point. So, in that case, you come out a little bit ahead, rather than breaking even.Like I said though, it's not really a big concern for us. We're not really buying it to go down there all that much at this point. It's mainly someplace we plan to spend a considerable amount of winter time once we're both retired, in say 12-15 years and beyond.