The cost of buying a vacation home can be offset by renting it out when you’re not using it. What may be the best home for your family and personal tastes may not be the most successful rental. If you want to make a return on your investment, ask yourself these 10 questions to make sure you’re buying a dynamic vacation rental property:
- Are you going to spend a lot of time there? Do you know you really like the area?: Thoroughly look into the neighborhood, including crime rates, walkability and local attractions.
- Does the location you’re interested in have durability as a hotspot? Will travelers continue renting your property for years to come?: Places can become trendy and not have the infrastructure to be a long term rental market. Also, make sure this is going to be a city or town that holds appeal to you and your family year after year.
- Do you think the market will appreciate? Is it a market on the rise?: On average, vacation rental homeowners will own their property for 7 years, so how much the home appreciates over that time is a big factor when calculating the return on investment. In some cases, the gain from property appreciation is more than you earn from rental revenue over the same period.
- Will your property be able to generate enough rental income?: Talk to a good local real estate agent who specializes in vacation home properties and has a great understanding of vacation rental prices and revenues in your desired area. You can do research on your own by visiting websites like VRBO to see the nightly rates for a variety of homes and how often they’re booked.
- Based on your research, is this revenue threshold met?: For every $100k you spend on a rental, you want to make $12-14k of rental income per year in order for it to be considered an investment grade rental return. To do this, you need to conduct a thorough analysis of all the expenses while assuming a conservative rental revenue.
- What is the regulatory environment like? What type of short term rentals are allowed? Are there any laws that seem likely to change?: Each city has different regulations, which sometimes even vary by neighborhood. If short term rentals are not allowed, that can severely limit your opportunity to generate revenue. It’s a good idea to look into states that have statewide short term rental protection.
- Does the property have super-valuable amenities?: High-end attributes will make your rental more marketable. These amenities include waterfront or ski-in/out location, ocean or mountain views, walking distance to the slopes or the beach, and proximity to main attractions, community amenities, and public transportation.
- Who will manage your vacation rental? Do you know what to do? Do you have time? Will you be effective enough to meet your rental income goals?: The more successful you are at renting your vacation home and generating income, the more work it creates. Read this article for more information on the importance of choosing an owner service provider.
- Are you prepared to handle upkeep and maintenance of your home with a quick turnaround required by guests?: It can be a burden to address any emergency or need that arises during a guest’s stay in a timely manner. Makes sure you have a solution in place if you are not willing to be available 24/7.
- If you go the property management route, will the commission interfere with your revenue goals?: Commissions vary widely throughout the industry. Some commissions are all inclusive but can hide unnecessary fees and charges. TurnKey prefers to be transparent and disclose exactly what you are charged. It pays to shop around for several rates in the city you’re interested in.
A vacation rental can provide a fun getaway for your family and friends while also serving as a worthwhile investment.