Real estate investment opportunities come in many shapes, sizes and dollar amounts. From a single family home to a duplex to a towering down town penthouse, the choices are seemingly limitless. Yet one of the investments is a type that vacation homes good investmenteveryone can appreciate; the vacation home.

Yes, what’s better than owning real estate on the silvery sands of your favorite beach, watching the seagulls float overhead and hearing the waves lap against the shore? How about having all that and having someone else pay for it? Now, that would be better, wouldn’t it?

Properly structured, that’s exactly how it works. Banks view vacation homes and second homes in the same manner as a primary residence. On the other hand, financing for rental property requires higher interest rates and a larger down payment compared to a vacation home.

You can have the property paid for by renting out the unit throughout the year, typically on a week to week or by the month. Such scenarios can provide far more income needed to pay for the mortgage, insurance and expenses including the funds needed to pay a property manager to oversee and manage the property, collect the rent and maintain the property.

Ah, but there’s the catch. When lenders determine that the property is rented out more than two weeks in the entire year, it is no longer considered a second home or a vacation property but a rental, which commands higher rates. When you apply for a loan to buy a vacation home, it’s up to you to inform the lender of your intentions. Many retirees prefer to live in their vacation home near year round and shutter the property during off season.

Others however, spend only a few weeks in the property and rent it out the rest of the time. When buying the property, it’s your responsibility to let the lender know of your intentions. In fact, there’s a specific area on the application asking if the loan is for a second home or an investment. When refinancing the property, the lender will automatically know the status by reviewing Schedule E which will show rental income reported to the IRS. If there’s more than a couple of weeks of rental income reported, the refinance application will be treated as an investment home and receive the higher rate reserved for rentals.