Imagine that you just came back from a much needed summer vacation and can’t get that beach house out of your head. You keep thinking about how peaceful you felt and how great it is to have a vacation home.
Your mind starts to wander and you consider, what if I bought a vacation property of my very own? Or maybe you ask yourself, is purchasing a vacation rental property a fantastic investment? Now is the time to stop daydreaming about having a vacation home and figure out if it is perfect for you.
Today, we’ll start out by listing the essential things to consider before buying a vacation home. Then we’ll weigh out the pros and cons of owning a vacation rental property. Finally, we’ll answer, is buying a vacation rental property a good investment.
Buying a Vacation Home: Things to Consider
There are a whole lot of things to think before buying a vacation home, as with any big investment. In the following sections, we will talk about factors that should impact your decision to take the plunge on a vacation home or not.
Contemplate Your Stage of Life
Are you raising a young family? How often do you travel? Just how much money, on average, do you spend on a family vacation? Are your children grown and you want to give a gathering place for everybody?
Considering that your stage of life will help determine exactly why you want to buy a vacation home and if the timing is ideal.
Second home loans generally require additional money down and a better credit score than owner-occupied home loans. In order to procure a second mortgage, generally you need to be able to verify that you can pay both your primary and secondary mortgage for between two and five months.
In 2014, 30 percent of vacation home buyers paid cash, according to the Realtors’ association.
Choosing to take out a second mortgage for a vacation home is a big decision that shouldn’t be taken lightly. If you are planning to get a mortgage to finance your second home, run the numbers to ensure it makes sense.
Can You Rent It?
Calculate insurance prices for the vacation properties you are seeking to buy. If you are planning on renting it out, then you will want rental home insurance, not general homeowners. The good news is, if it is used as a rental, insurance may be considered tax deductible.
Deciding to rent your vacation property or not would have a massive impact on out of pocket expenses. Rentals offer tons of tax deductions on expenditures like, mortgage interest, insurance, maintenance, and repairs. Renting out the home can also produce cash flow to help offset the costs associated with owning it.
When looking at where to get vacation property, choose your location carefully. If you are planning to rent out your vacation home when you are not using it, it’s important to consider future tenants. The rental ought to not only attract you, it should attract the renters as well.
A fantastic place to start is places you’ve been to on vacation before and you’re somewhat familiar with. Decide on a vacation rental property that’s easy to get to and will attract guests. Because this is the vacation home, also consider travel time and proximity to your primary residence. Choosing a good location for a vacation home has the capability to make or break your expertise and investment.
Pay Attention to Seasons
When determining where to buy a vacation home, pay attention to the seasons. If you are renting it out, understand when the”high season” months are, and when you can expect less demand.
For example, if you purchase a property in a beach setting, the high season will be through the warmest months. These high season or high demand months must make the most consistent rental income. On the other hand, during”off seasons,” expect less consistent rental income and be prepared for the lulls throughout the year.
Laws and Regulations
Because laws and regulations vary depending on location, check to make sure the vacation property you are looking to buy is within an area where rentals are allowed. Worst case scenario is that you fail to look into local laws and find out after purchase that you aren’t allowed to rent out your property.
There are steep penalties for renting out a property where it is not permitted. Certain cities also have a limit on how many days you can rent out a property.
Additionally, look at the regulations for short-term rentals in the area. It would be wise to avoid these areas, especially if you are going to rent out the property now or in the future.
How are you going to maintain your vacation property? If your rental isn’t in close enough proximity to take care of it yourself, consider hiring a property management company. A tip from rental experts is to set aside at least 1 to 2 percent of the value of the house per year, for maintenance and repair costs.
Even if you are close to your property to tend to all the maintenance, ask yourself if you want to take on that responsibility. Especially in the case of an emergency, a property management company may be worth it. You may also be able to deduct the price of a management company in your taxes if it qualifies as a rental property.
One of the biggest”what if’s” for a vacation rental property is the issue of vacancy. Assuming you want to earn rental income when you aren’t using the vacation home, you need to figure out how to attract guests.
Prior to closing on the deal, think about how you want to market your vacation rental home. Will you market the property yourself? If so, how? There are a range of vacation rental sites where you can list your home. Choose whether you want to go the Airbnb or even VRBO course, advertise through social media, or hire a property manager to handle all the day-to-day details.
There are a lot of marketing strategies to increase the likelihood of maintaining your vacation rental filled. Once again, based on how hands on or off you want to be, a property manager may be a great alternative.