Second Home vs Investment In Colorado’s Mountains

You have your eye on the high country. A place in Vail, Breckenridge, or Keystone sounds perfect, but you keep asking one question: is this a second home for your life or an investment for income? Both paths can work along the I‑70 corridor, but they come with different rules, costs, and risks. In this guide, you’ll learn how lenders, insurers, and local towns define each option, how to underwrite your plan, and what to verify before you write an offer. Let’s dive in.

What “second home” and “investment” mean

Lending definitions

Lenders place homes into three buckets: primary residence, second home, or investment. A second home is a property you use for part of the year for personal enjoyment. An investment property is held mainly to produce rental income and is not your residence. Your intended use drives the category and the loan terms that follow.

Tax basics and gains

Mortgage interest on a second home can be deductible within federal limits for qualified residence debt. Income and expenses from rentals are typically reported on a rental schedule, and depreciation can offset income. The capital gains exclusion for a primary residence does not apply to a second home unless you convert it and meet use and ownership tests. This is a good moment to align early with your CPA so your plan matches IRS rules.

How financing differs in the mountains

Down payments and rates

Second homes usually require a larger down payment than a primary residence. A typical minimum sits near 10 percent, and many buyers put 15 percent or more down. Investment properties often require 15 to 25 percent down, with rates and required reserves higher than second homes. Expect stricter credit and reserve requirements for resort condos and higher price points.

Will lenders count STR income?

If you aim to rent, do not assume a lender will use projected short‑term rental income to qualify you. Some lenders will consider documented history, but many will not underwrite to speculative numbers. When allowed, they often require 12 or more months of rental statements, signed management agreements, and may discount for vacancy.

Condos and resort overlays

Many mountain condos sit in resort buildings with active rental programs. Lenders may apply extra reviews tied to HOA rules, owner‑occupancy ratios, or rental restrictions. National lenders can be conservative in these settings. Local portfolio lenders sometimes offer more flexibility, but terms vary.

Action steps for pre‑approval

• Get prequalified with a lender who regularly finances mountain and resort properties.
• Ask how they treat second homes versus investments and whether they will credit any rental income.
• Request written guidance on down payment, reserves, and rate differences for both paths.

Insurance and mountain risk

Pick the right policy

A standard homeowner policy fits owner‑occupied homes and some second homes, but many exclude short‑term rentals. For long‑term rentals, a landlord policy is common. For frequent short‑term guests, you may need a vacation rental endorsement or a dedicated STR policy that covers guest liability and property damage tied to business activity. Always confirm vacancy rules and inspection requirements if the home will sit empty for stretches.

Colorado mountain risks

Mountain homes face winter storms, freeze damage, ice dams, and roof load from snow. Some areas carry wildfire risk, especially where mitigation is limited. Steep terrain can add unique hazards. Private utilities like wells or septic can also affect coverage. Ask carriers about endorsements for water backup, mold, and loss of rental income.

Insurance checklist

• Confirm your policy allows the intended use: personal only, occasional rental, or regular STR.
• Review unoccupancy limits and any required property checks during vacant periods.
• Consider umbrella liability, replacement cost coverage, and loss of rent coverage if applicable.
• Source quotes from brokers who regularly insure Colorado mountain properties.

STR rules along the I‑70 corridor

Licenses, caps, and HOAs

Most towns and counties along I‑70 require a short‑term rental license or registration plus payment of local lodging taxes. Many have area‑based caps, density limits, or restrictions in workforce neighborhoods. HOAs can be stricter than towns and may prohibit or limit STRs even when the municipality allows them. Always review HOA covenants and any registration rules.

Taxes and enforcement

Short‑term rentals are typically subject to local transient occupancy taxes. State or local sales taxes may also apply. Platforms sometimes collect certain taxes, but owners are still responsible for compliance. Towns enforce through fines and license actions. Policy is active and evolving in resort areas, so plan for change.

What to verify before you offer

• Eligibility: Confirm with the town or county whether STRs are permitted for the property and what license is required.
• HOA: Get rental rules in writing, plus any caps or fees.
• Seller documents: Request the current STR license, tax remittance history, and recent rental statements if you intend to rely on income.

Run the numbers with clarity

Key formulas

• Gross rental revenue = Average nightly rate × Occupancy rate × Rentable nights per year.
• Net operating income (NOI) = Gross revenue − operating expenses − lodging and other applicable taxes.
• Debt service = Annual principal + interest payments.
• Cash‑on‑cash return = (NOI − Debt service) ÷ Cash invested.
• Break‑even occupancy = (Debt service + fixed costs) ÷ Net revenue per night.

Costs people miss

• HOA dues in resort buildings can be high and can change your return.
• STR management often runs 20 to 35 percent of revenue, plus cleaning and supplies.
• Utilities, snow removal, hot tub service, and guest consumables add up.
• Turnover wear, restocking, and minor damages are frequent with STRs.

Three‑scenario modeling

Build optimistic, base, and conservative cases for occupancy, average daily rate, and expenses. Layer in seasonality for winter peaks and shoulder season dips. Stress test vacancy and rate softness. If the deal only works at the optimistic case, pause.

Beyond math: lifestyle and exit

The personal value of a second home can be real. If family time and easy access to the mountains matter more than yield, a second home may be the right call. If you need strong cash flow, be candid about seasonality, HOA costs, tax compliance, and management time. Plan for liquidity. Resort property can take longer to sell, especially off‑season or during a downturn.

A decision checklist for Denver buyers

1. Purpose: How many nights of personal use do you want each year? Is income primary or secondary?
2. Legal: Verify STR permissibility with the town or county and the HOA before you offer.
3. Financing: Get written lender terms for second home versus investment. Confirm reserves, down payment, and rate.
4. Insurance: Secure quotes that match your intended use, including STR endorsements if needed.
5. Financial model: Build three scenarios and calculate cash‑on‑cash returns and break‑even occupancy.
6. Management: Decide on self‑management or a local manager. Price the full cost.
7. Taxes: Coordinate with a CPA on deductions, depreciation, and reporting.
8. Exit: Plan for policy changes, big repairs, and vacancy. Keep reserves.

Second home vs investment: quick compare

• Second home: Personal use first. Lower minimum down than many investment loans. Mortgage interest may be deductible within limits. Insurance must reflect seasonal use. STR activity, if any, should be limited and allowed by your lender and insurer.
• Investment: Income first. Higher down payment and reserves. Lenders may use documented rent to qualify. Requires landlord or STR‑specific coverage. Full compliance with licensing, taxes, and HOA rules is critical.

When to bring in a pro

Your best outcome comes from aligning your use, financing, insurance, and local rules before you buy. If you want a calm, legally informed process and vetted local partners, connect with a trusted adviser who can coordinate lenders, insurers, property managers, and CPAs while you focus on the big decisions. Start a clear plan with Julie Goodkind. Request a confidential consultation.

FAQs

Can a Denver buyer use a primary‑residence loan for a mountain condo?

• No. Primary loans require you to live in the home as your principal residence. If you keep your Denver primary, your mountain purchase is typically a second home or an investment.

Will lenders count short‑term rental income when I qualify?

• Sometimes, but many require at least 12 months of documented income and signed management agreements, and they may discount that income for vacancies.

Can my HOA block short‑term rentals even if the town allows them?

• Yes. HOA covenants can prohibit or limit STRs. Always obtain the HOA’s rental rules in writing before you commit.

What taxes apply to short‑term rentals along I‑70?

• Short‑term rentals usually owe local lodging taxes and may owe state or local sales taxes. Platforms may collect some taxes, but you remain responsible for full compliance.

Is insurance more expensive for STRs and rentals?

• Generally yes. STR and investment property coverage costs more than standard homeowner policies and requires the right endorsements for guest activity and vacancy.

What if I plan both personal use and some STR nights?

• Hybrid use needs careful review. Lenders and insurers may still treat the home as an investment based on rental frequency and documentation. Confirm terms in writing before you buy.