Most big decisions are made with a little bit of help from Google, Bing, or another search engine of your choice – deciding to purchase a second home to use as a vacation rental is no different.
Typing “What should I know about purchasing a vacation rental?” into Google yields over 18 million results. It’s great that there’s so much information readily available on making this huge real estate purchase – but how do you know what advice is valid and which advice to avoid?
Here are 5 common pieces of vacation rental real estate advice – and here’s why they’re wrong:
What People Say: Buy During Slow Season
What You Should Do: Buy During Peak Season
When you’re purchasing a vacation rental, it’s beneficial to have a well-rounded picture of what your busy season will look like in terms of revenue and also what issues you may encounter during the season. For example – if you’re looking to buy a ski home in Park City but you’ve never seen the home you’re purchasing in the middle of winter, you might get to the snow season and not know how badly the driveway ices over. Buying a home during the most popular travel time for the location you’re buying in gives you a clearer picture of what you’ll need for that home once you own it. Additionally, it’s a great opportunity to ask the seller how many guests they’ve had so far in the season and how many more they can expect.
What People Say: Your Regular Homeowner’s Insurance is Enough
What You Should Do: Buy Vacation Rental Insurance
Owning a vacation rental home comes with a very different set of possible issues than a regular home. For example – a natural disaster doesn’t just lead to home damage but can also lead to a loss of revenue, and that’s something you need to protect yourself against.
Vacation rental insurance can be more nuanced than your regular homeowner’s insurance, which is why you should always talk to an agent that specializes in it. Here are topic areas you should cover with your agent to make sure your home is covered.
What People Say: Buy a Single-Family Home to Make Money
What You Should Do: Buy Based On What Works For You
Realtors will go back and forth on whether you should buy a standalone, single-family home or a condo. While some argue you have to purchase a single-family home to generate revenue, that’s not entirely true. Condos are also a more affordable rental option that can still help you generate revenue. In many locations, it’s not what type of rental you purchase but the rental’s proximity to popular attractions – like the beach, ski lifts, or city center – and its amenities. Work with your realtor to identify what works best for your goals and your budget.
“Whether you’re buying a home or a condo, make sure you know what the condominium or HOA’s rules are about vacation rentals,” says Affinito.
What People Say: You Need A 20% Down Payment
What You Should Do: Work With A Savvy Lender
Buying an investment property is a bit different from buying a primary home. For starters, buyers normally have to have a larger down payment on an investment property than on a primary residence, says Affinito.
Even though investment properties require a larger down payment, that still doesn’t mean it has to be 20%. Affinito says it’s better to make a down payment within your means than wait to save up 20% only for the market prices to increase.
“If you’re waiting another year or two to save up for a 20% down payment, then you’re trying to walk up a down escalator,” says Affinito.
Have an honest conversation with your realtor and lender to decide which financial choice will be the smartest for you when you purchase your vacation rental. Deciding how large your down payment should be isn’t always black and white.
What People Say: You Have to Stop Accepting Reservations While Selling
What You Should Do: Keep Booking Your Home
It may feel a bit strange to talk about selling a home you haven’t bought yet but it’s important to have an exit strategy for your home, just in case. Selling a home is dependent on a lot of things, which is why it’s important to continue booking your home until everything is signed and secure.
Continue accepting reservations during the selling process but also make sure you have a plan to handle showings and handing off bookings. Affinito recommends talking to an attorney to have a plan drawn up with the future buyer about how reservations will be handled.
Want to hear more about owning a vacation rental and how to get the most out of it? Learn more here.