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Buyers snap up vacation homes preretirement, rent them out. Here’s how

Buying Cape Cod
This Barnstable property along the Centerville River is on the market for $779,000.

Jeff and Joan Talmadge weren’t looking to start a vacation-rental empire in 1996. They were just empty nesters in the market for a second home after their youngest son left for college. “We were bereft, actually,’’ Joan said. They wanted to buy a home they could retire to one day and, in the meantime, enjoy with their growing family.

They began their search on Nantucket, where they had often vacationed. “But we were a million dollars and a private plane short of buying there,’’ Joan joked. Eventually they rediscovered the Outer Cape and found a listing in Orleans with a view that left Jeff “weak in the knees.’’

“It was way over our price range,’’ Joan recalled. Still, they knew they had to buy the place — even if it meant renting it out all summer just so they could afford it. “It’s a deal we made with the devil, and we’ve been renting it for 20 years. We’ve enjoyed it in the offseason and rent it in the summer, and it’s worked out beautifully,’’ she said.

The Talmadges, who later founded the vacation rental site WeNeedaVacation.com, said many of their clients buy second homes with an intent to retire to them. Until then, they rent them to sun-seeking vacationers who help pay down the mortgage.

Susan Smith and her husband bought a vacation home on the Cape in 2004, intending to use it sparingly and rent it out until they could retire there — which they finally did last fall. “We didn’t have our summers free; we were working,’’ Smith said, “but we’d come up [from Pennsylvania] for a week or 10 days in October, the same around Christmas, and again in May, and we rented the house out starting that first summer.’’

Peak season on the Cape is fleeting, so rents rarely cover the entire mortgage and all expenses — but every bit helps. It’s like getting a matching contribution in your 401(k). “It was a good extra income for us,’’ Smith said.

Or you could think of it as a second job. Amy Hart-Doering and her husband bought a home in North Eastham in 2006 after vacationing on the Cape every summer. They were able to rent it out from as far away as Australia, where they lived for eight years, but it took some hustling. “Each year it got easier, but it was still a lot of work,’’ Hart-Doering said. “I was spending an average of 20 hours a week making sure everything was running well during the season.’’

Hart-Doering asked their hyper-attentive home inspector whether he’d look after the property, and he agreed to check on the house between tenancies and during the offseason. “I got to rely on him for everything, like making sure the pest control guy came, because I was so far away,’’ she said. They paid a realtor to manage bookings (for 15 percent to 20 percent of the rent, Hart-Doering said), and hired landscapers to cut the grass ($60 a mow) and a housekeeper to handle the turnovers between guests ($160 to $200), as well as to open it and close it down each season ($250).

Last year, Hart-Doering started using Del Mar Vacations, which guarantees homeowners a certain income and takes over full management of a property — handling bookings, cleanings, linens, yardwork, and even basic repairs under $100. For bigger expenses, Hart-Doering said, their manager solicits bids for her to compare.

Hart-Doering said she doesn’t have to think about the house now — until she goes online to reserve her family’s vacation. “I just book our stay as if I’m a guest, and everything’s prepared for me: They do the turnover, all the beds are made when we arrive, and when we leave, we just walk out like we were guests.’’

Kent Zelle, CEO of Nauset Rental, said the cost for full-service property management on the Cape varies, but averages about 30 percent of the rent. That includes booking services like marketing, tenant screening, and payments, he said, as well as taking care of the property during the rental season.

How do all those numbers add up? If you were to purchase a $400,000 home on the Cape — the median price of a single-family in Falmouth in 2017, according to the Warren Group, a real estate-tracking firm — you’d be looking at about $2,000 a month in mortgage, taxes, and insurance, assuming a 20 percent down payment and a 4.75 percent fixed-rate 30-year mortgage. That’s $24,000 a year.

Meanwhile, the average weekly rent for a three-bedroom vacation home on Cape Cod this summer is $2,619, according to WeNeedaVacation.com. Rent it out for 10 summer weeks, and that’s roughly $26,000 a year — but you’ll have to subtract about $8,000 if you use a full-service property manager, for a net income of around $18,000. It’s not enough to cover all expenses — especially after factoring in upkeep, since properties on the Cape take a beating from Mother Nature — but it can definitely give your retirement plan a little boost.

Financial planner Jennifer Lane, founder of Compass Planning Associates, said the approach can work for some people, but warns it’s hard to accomplish two goals with one property. “Often what works as an investment property isn’t exactly perfect as a retirement home,’’ she said.

To that end, it’s worth envisioning what you’ll need in retirement. “When we purchased the house, we specifically thought about retiring here,’’ Smith said. “It has a first-floor master bedroom and bath, and we thought it could be a manageable house to live in as we aged.’’

Then, think about what renters want. Proximity to the water commands a premium. “Homes within a half mile of the beach do much better,’’ Joan Talmadge said. “They’re much more popular, and they’re the ones that rent first.’’

Large homes fetch more money in the peak of summer, but prices plunge after Labor Day, Jeff Talmadge said. “If you get half of what you get in the summer, you’re doing well.’’ Four-bedroom homes or larger are harder to fill in the “shoulder seasons,’’ since they’re generally rented by large families whose schedules are tied to the school calendar. For that reason, he recommended a smaller property — one that can accommodate a couple or two or a family with preschoolers.

Zelle said not to overlook the importance of interior decorating. “The decor and furnishing makes a huge difference in rental income,’’ he said. While homeowners tend to be older, renters are usually young families, whose desired look is “modern, clean, beachy right now,’’ he said.

But while you should pay a lot of attention to your decor, don’t pay a lot of money for it. “I’ve had a few lights broken off night stands and some parents that let their kids eat Oreos on the sofas,’’ Hart-Doering said.

While the popularity of Airbnb has led to a surge in travelers using vacation rentals, it’s been a double-edged sword on the Cape, Zelle said. A glut of new, competitively priced rentals on the market is putting pressure on longtime homeowners, and the uproar over Airbnb in the Boston area means a lodging tax will probably hit vacation rentals soon, he added.

But this strategy isn’t only applicable to the Cape, nor to vacation rentals. Salem realtor and real estate investor Dana Bull said some of her clients envision downsizing to a condo in the city in retirement. Those who buy a decade or so early can rent out their unit as landlords until they’re ready to move in themselves.

A nice wrinkle to this strategy is that, in retirement, you needn’t pay a premium to live near a job center or in a good school district. “As a retiree without young kids, the school system is probably low on the priority list,’’ Bull said. If you value walkability, proximity to the ocean, shops and restaurants, and a community vibe, she said, “there are lots of communities on the North and South Shore that fit this bill and have homes at lower price points than neighboring towns.’’ While prices in Boston and its nearest suburbs have shot upward since 2012, the Cape saw far more modest increases.

Still, everyone I spoke to recommended tempering expectations: You’re not going to get rich doing this, and it can be risky. “It’s important to understand that while a rental property certainly can provide good returns, you are inherently putting a lot of eggs in one basket,’’ said financial planner Matt Becker, founder of MomandDadMoney.com. “It’s probably best to make sure that you’re already making full use of the traditional retirement accounts available to you, like 401(k)s and IRAs,’’ he added, before getting too heavily invested in real estate.

Rental income can provide a nice fall-back buffer, though. Patty Bray of Weymouth and her husband bought a vacation home in Falmouth about four years ago, after their kids finished college. They’re not ready to retire yet, so they decided this year to rent out their Cape home for the first time. “For two months out of the year you can make close to $20,000,’’ she said. “So as we get ready to retire, to use this to rent to draw back on is a nice cushion.’’

Eventually, the time comes when you get to enjoy the property yourself, and it’s all the sweeter. Jeff Talmadge said their “reclamation day’’ — when they move back into their Orleans home after Labor Day — is a highlight of their year.

“It’s better than Christmas,’’ he said.

Jon Gorey blogs about homes at HouseandHammer.com. Send comments to jongorey@gmail.com. Follow him on Twitter at @jongoreySubscribe to our free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp.