The Step-by-Step Guide to Investing in a Vacation Rental

If you’re new to real estate investing, buying a vacation rental is a great way to get your bearings. The vacation rental industry is booming! These days, more travelers are choosing rental homes over hotels — and investors are enjoying some substantial profits as a result. But like all business ventures, purchasing a vacation rental is not a guaranteed success. You’ll need to do some thorough planning to find a profitable rental and manage the property effectively.

Get Your Financials in Order

Before purchasing a property, make a budget and secure your funding sources. Also, remember that your property investment budget should go far beyond covering your mortgage payment. As you figure out what you can afford, consider ongoing expenses, including monthly mortgage payments, maintenance, taxes, insurance, property manager fees, and so on. Fortunately, most of these expenses are tax-deductible!

Since you will probably need a loan, this is a good time to check your credit score. Despite common belief, it is possible to invest in property with a bad credit history — you may have to find a business partner or co-signer to jump on board with you. Keep in mind that you will need a much higher down payment for your investment property than you did when you bought your first home. According to Millionacres, you can expect to put at least 20 percent down to finance your rental as an investment property.

Find the Perfect Rental

When it comes to vacation rentals, location trumps everything. Vacation rentals that experience the highest demand are often located in popular tourist locations. Properties on the outskirts of town may be more affordable, but you’ll have a harder time attracting guests, and you may even have to charge lower rates for your rental. Look for rentals in areas near the activities that tourists enjoy the most.

Get a Home Inspection

Whenever you purchase property, a home inspection is a must. Your home inspector will look for potential issues in the home that could become costly, saving you from expensive headaches in the future. A home inspection is also important for the safety of your guests! Faulty wiring, radon, and asbestos can create a hazardous environment for your rental guests, so it’s important to look for these issues before buying the property. Even if the home is in good condition, your inspection can help you estimate your ongoing maintenance costs and predict when you will need to replace expensive elements in the home, like the roof and HVAC system.

Learn How to Manage Your Property

Now that you have gone through the complex process of buying your first investment property, learn how to manage it. Vacation rental managers have a lot of responsibilities. Some of your most important tasks involve staying on top of maintenance, cleaning, marketing, and accounting, all while managing bookings, responding to inquiries, and interacting with guests. The experts at BiggerPockets recommend hiring a good housekeeper and a handyman who you can count on to keep your rental in top shape.

You may also want to hire a property manager to take care of your investment and keep your rental business running smoothly. A property management company can keep your guests happy with regular cleanings, on-site support, and state-of-the art home security systems. Just keep in mind that hiring a property manager will cut into your rental profits a bit.

If you’re in the market for a vacation rental property, make sure you know what to expect. Financing and purchasing a property will take time. Try not to rush the process! Finding a vacation rental in a great location with minimal maintenance problems — and within your budget — will help ensure success. Keep looking until you find the perfect property!

Katie Conroy

Advicemine.com :: kc@advicemine.com