What to know about vacation homes

While some Americans are struggling to buy their first home, a growing number of well-off individuals are contemplating a second major property purchase.

"In the last several years, I've seen a 25 percent increase in the number of clients looking to buy vacation homes, " Steve Goddard, a Realtor with ReMax Estate Properties in California, told Next Avenue, an online resource for older adults.

Americans purchased more than 700,000 vacation homes in 2013, according to the National Association of Realtors. The rising interest in vacation homes results from an improved housing market and low interest rates, Goddard said.

Is a vacation home right for you?
But before anyone considers making serious investments in a vacation home, they must determine if they are financially stable enough to take on additional loans.

Next Avenue reported more than 6 in 10 vacation homebuyers take out a new mortgage. Vacations homes tend to have higher interest rates than first mortgages, because people are taking on large amounts of additional debt, David Gorman, a sales executive for a financial institution, told US News.

"Traditionally, they are more likely to pay the mortgage on their primary homes if they run into financial issues."

Vacation homebuyers should be prepared to pay a minimum down payment of at least 10 percent, though buyers should consider putting down 20 percent or more to avoid paying private mortgage insurance, Next Avenue reported. PMI on a vacation home usually runs around 0.5 percent to 1 percent of the loan amount annually.

But some vacation homeowners are able to offset their costs by renting out their property.

Rent out the vacation home for additional income
One benefit to owning a vacation home is the ability to have it pay for itself. Owners can rent out spare rooms while residing in the property or can rent out the entire home.

Airbnb, a home rental site, allows homeowners to rent our particular rooms or their entire home. The homeowner sets the price and chooses who they want to rent to. It's free to list a home for rent, but Airbnb collects a 3 percent fee after a rental is booked.

Damon Rogers is one owner who's found some financial relief through renting her properties. Rogers currently rents the guest house behind her home and a nearby studio apartment on Airbnb and VRBO, according to U.S. News & World Report. She said she loves hosting guests.

"The people I meet are absolutely interesting," Rogers said. "They don't want to stay in an hotel. They want to live in the ambience of the city and get to know the people on the property."

Rogers keeps business humming by making sure her rental units are always clean and in proper working condition.

"If I have a real quick turnover, my husband and I will get back there and clean it, but we prefer being the innkeeper and not the housekeeper," she said, noting she hires a cleaning staff to prepare the rooms in between guests.

However, Andrew McConnell, CEO of VacationFutures, told U.S. News & World Report that owners need to follow certain rules when renting out space.

"Rentals are treated like hotels in most geographies now, and owners need their properties to comply to local rules," McConnell said. "The biggest one is occupancy tax, and a number of different municipalities have licensing requirements to be able to rent out on a short-term basis."