What to Consider Before Buying a Vacation Rental
Buying a vacation rental is a big decision, and it’s a good idea to make sure you’ve done your research before making such a large commitment. Here are some important things to consider before buying a vacation rental.
The most important item that you should consider before buying a vacation rental property is location, location, location. Is there a high demand for your vacation market? Are you close enough to shops, cultural sites, tourism destinations, maintenance companies, and grocery stores? Considering questions such as these will help you find the best place to purchase a vacation rental. Although properties in high demand areas will be more expensive, the return on those properties is much greater. Location is more important than initial price.
In order to buy a vacation rental, many homeowners will have to take out a second mortgage. Because of this, it’s important to make good financial decisions, such as making sure that the rental property can cover its own monthly costs. Consider how much rental income you can reasonably generate, and if it can offset your mortgage. In the vacation market, there will most likely be an “offseason,” or a time of the year when renting is slow. As the owner of the property, you must find a way to maintain your rental income, whether that is through ensuring continual renters, charging enough during the busy seasons that you can cover some decreased costs during the offseason, or both.
Added Maintenance Costs
Oftentimes vacation homes are located in expensive areas. “Expensive” areas could be areas that are more remote (i.e. mountains, wilderness, and national parks) or areas with high population and desirability, like beaches or big cities. Regardless of the area in which your vacation home is located, maintenance costs will likely be much higher than in an average neighborhood. Scarce contracting resources in remote areas, or high contracting overhead and demand in high populated areas are contributing factors to this. Recognizing that maintaining your vacation home oftentimes can be more expensive than maintaining your primary home is important before buying a vacation rental.
The style of your vacation home can impact its popularity among renters. Popular home styles in the United States include colonial houses, farmhouses, Victorian homes, Cape Cod homes, mid-century modern homes, and craftsman homes. Beach houses and cabins are also quite popular among vacationers. You might consider buying a home and remodeling it to fit one of these popular styles. You could also choose to build instead of buying. When you build a home, you get to choose from a variety of custom home styles. The flexibility that comes with building a custom home can be a great asset.
One factor in ensuring that your vacation rental has enough renters is making sure that your house has the amenities that your target market desires. It’s a good idea to research the needs and wants of your particular target market. For example, a beach townhouse will not have RV and ATV parking areas, and a cabin might not have the same amenities as a beach house. It’s important to make sure the house has what the people want. While you might want to consider buying a home that has specific amenities suited to the needs of your target market, there are several amenities that generally appeal to most people. A pool table, hot tub, and TV are generally safe bets for vacation homes. If you want to attract renters, put money into the amenities. You want to give renters something that they wouldn’t get at home.
As the vacation rental market is becoming more popular, it’s likely that you will have a good amount of competition. There are hundreds of properties on all the major listing sites, and it’s not always easy to get your property to stand out from the crowd. Before buying a vacation rental, you should take some time to lay the foundation of a marketing strategy that can help you drive traffic to your vacation home. You can find renters better as you create an attention-grabbing listing, and advertising your properties on several online platforms. You should also research property promotion and pricing strategies before buying a vacation home.
Taxes and Interest Rates
Taxes and interest rates vary by location. A vacation home in California is much more likely to have higher rates than a cabin in the woods of Idaho. If money is tight and this is your first location home, pay close attention to taxes and interest.
Laws and Regulations
There are laws and regulations that govern the vacation rental market. These rules will vary depending on the local laws for each location. You should make yourself aware of these rules before you buy a vacation rental, as these local laws could highly impact your decision. General rules that apply to most locations include obtaining a permit and business license, obeying taxation rules, safety regulations, and insurance regulations.
Continuous Cash Flow
Because purchasing a vacation rental is a big investment, it’s a good idea to calculate your expected cash flow before you commit. You should do some market research and talk to other vacation rental landlords and business professionals. Try to get an idea of the amount of vacation renters in your prospective area. Making sure your vacation rental will be regularly frequented with interested renters is one important factor in the success of any investment. You should also try to estimate the number of needed repairs and maintenance for your property. If your property will cost more money than it brings in, it’s clear you will have a problem with continuous cash flow.
There are many benefits that can come with investing in a vacation rental property. It’s a great way to supplement your income, cash in on tax benefits, and increase your enjoyment. Considering these few ideas before making that investment will help you make an informed and intelligent decision.
Here’s another article you might like: 3 Cost-Saving Tips for Vacationing with Your Family