Given the magnitude of the investment, it’s tough to decide when to buy a vacation rental property. You’ve no doubt dreamed about owning a vacation rental, and you’ve spent months or years saving up enough funds—but is now the best time to buy your vacation rental? Like all large investments, there is never an absolute, 100% right time. It will always be easier and safer to play the waiting game, but this approach will not lead to your vacation rental business goals, such as generating extra income for financial independence.
So, how do you know it’s the right time to buy a vacation rental? Here are eight questions to help you determine if it’s time:
1. Have you picked the right location?
If you’re hoping for quick return on your vacation rental investment, you’ll want to purchase property in the best place to buy a vacation rental – a popular tourist destination. This could mean beaches, amusement parks, lakes, national parks, or stadiums. That said, it’s not always the flashiest destinations that draw out-of-town visitors. Work travel is another major area of opportunity—with a typically desirable, easy-to-work-with clientele.
For example, when rental property owner Andrew Zavakos took the leap, he thought location may hold him back. Four properties later, he believes it’s one of the best business decisions of his life.
“For me, the first investment property was almost an accident,” Zavakos said. “Dayton, Ohio, doesn’t typically attract a high volume of tourists, so I jokingly put an extra bedroom on AirBnB to see what would happen. Within 24 hours I had a long-term renter; they stayed in my property for 40 days!”
Whether you’re targeting business or leisure travelers, one of the best ways to confirm you’ve found the right destination is getting a local realtor’s opinion. They know the market and can help you determine the potential before you invest in a vacation rental.
The last criterion is making sure the location is somewhere you would actually want to visit—particularly if you’re planning to spend time in the home. Buying a vacation rental is a big move, and you’ll be more invested for the long-term if you benefit both personally and professionally.
2. Have you stayed in your selected location?
Before you jump into purchasing a vacation home, make sure you have a good understanding of the area—and not just from Google Maps or a tourism website. To fully understand the neighborhood, spend some time there, preferably close to the home you’re hoping to buy. Try the local restaurants, take the local bike paths, and head to the local attractions. Immersing yourself in your future second neighborhood will help you comprehend the positives and negatives of the area, as well as any watch-outs you may have overlooked (such as flooding on the street after a rainstorm).
3. Do you have the capital—and credit score—to buy?
Unlike a primary residence which requires 3% to 5% down, a property being used as a rental typically requires a 20% to 30% down payment given the risks. Rentals are often more likely to experience missed payments, and the high down payment means you’re much less likely to buy a property you can’t afford.
Additionally, to get a good mortgage on your vacation rental property, your credit score should be in the mid 600s or higher, according to the Fannie Mae 2018 Eligibility Matrix.
4. Are you financially prepared for unexpected expenses?
Just like a primary home, owning a vacation rental property can come with a number of unexpected expenses; think heating and cooling, plumbing, decorating, repairs—and this doesn’t begin to include fees and property taxes.
While it may sound alarming, Zavakos says the upfront and regular investments have paid off. It just took some time and tricks of the trade to adjust to the situation.
“I was surprised by the amount of linens and towels I went through,” he said. “I use white towels and linens so guests know everything is clean, but every little thing shows up on white, and sometimes bleach and washing won’t remove the stains. That meant a lot of new linens in the beginning. Since then, I’ve left out makeup remover wipes for guests and have seen quite a difference.”
Another problem Zavakos has faced is that people don’t treat a rental property like they would their home, which can lead to a variety of accidentals such as hiked up heating and air conditioning, or improper items flushed down the toilet.
The best solution is to get ahead of potential user errors with thorough instructions and properly screening your vacation rental guests. You’ll also want to make sure you have extra money set aside for unexpected incidents and fees.
Use this quick guide to effectively track your rental property expenses
5. Do you know the local regulations?
Each city and municipality has their own regulations when it comes to vacation rental properties. In some areas such as New York City, you can’t rent out a full residence for less than 30 days (unless the homeowner is also staying in the home). In Santa Monica, renters must live on the property during the renter’s stay—in addition to registering for a business license and collecting a 14% occupancy tax, payable to the city.
While these rules and regulations may seem daunting, fear not. Most areas in the U.S. are much more flexible when it comes to vacation rentals. A trusted realtor will help you understand the ins and outs of regulations in your community so you can run a law-abiding property from day one.
6. Do you have the time for upkeep, or a trusted partner?
Upkeep is one of the biggest headaches for vacation property owners. From cleaning and guest experience to compliance and Wi-Fi glitches, maintaining your vacation property could become a full-time job. If you’re planning to handle on-site issues yourself, make sure you truly have the time (and resources) to do so. This means your rental property needs to be within driving distance, and you have the flexibility to answer guest queries and respond to issues in real-time. Otherwise, you run the risk of bad reviews or lost business.
That said, you don’t need to quit your day job to run your vacation rental smoothly. Hiring a property manager grants you the opportunity to manage your rental remotely. Property managers like TurnKey can handle the often overwhelming logistics, including vendor management (including housekeeping), inspections, upkeep with local regulations, guest relations, itinerary suggestions, house calls, and more. With a local representative on call, you’ll have peace of mind that your property is being cared for and guests are having a five-star stay.
7. Are you prepared to market your rental?
Simply buying a rental property won’t lead to renters. You have to market your home or condo so people know it’s available to rent. Marketing options include rental websites like AirBnB or HomeAway, as well as social media promotion across Instagram and Facebook. (For inspiration on how to brand your home and build a following, check out @TheKutcherCondo on Instagram.)
Similar to home upkeep, marketing your vacation rental can quickly become cumbersome. Property management companies like TurnKey are trained to take over your marketing efforts, listing you on 50+ vacation rental sites with proprietary algorithms to maximize bookings throughout the year.
8. Are you mentally and emotionally prepared to buy?
Purchasing a vacation rental property shouldn’t be a rash, spontaneous decision. (In fact, the high mortgage rates are designed to counter impromptu purchases.) Even if you’re ready from a financial standpoint and you have a game plan for property upkeep, sit down with a loved one or trusted friend to talk through the decision. Present the pros and cons, with details on how you’re ready to tackle the big questions, then see how they react.
If you’ve made it this far, you’re more than likely ready for the leap, but it’s always best to get a second or third opinion to be certain.
So, when is the best time to buy a vacation rental?
If you’ve answered yes to questions one through eight, chances are it’s time to purchase your vacation rental property. Now comes the tough part: When should you actually buy your vacation rental
There’s a vacation rental myth that you need to buy your property in the offseason, but that’s not necessarily true. If you purchase your vacation rental property during peak season, you can understand the ins and outs of your home in its prime. For example, if you’re purchasing a beach home, you may not realize that your guests need passes to actually access your home’s main selling point—the beach. By purchasing during the prime season, you can get ahead of issues quickly so your guests have a positive stay (and therefore leave positive reviews) from the get-go.
Of course, deciding whether or not to buy a vacation home is a personal decision. According to Zavakos, who now owns four successful vacation rental properties, you need your heart and your head to be 100 percent in it.
“One of the most overlooked things about buying a vacation rental is remembering it should be fun,” he said. “If you’re in it for the money and only the money, your guests will see right through it.”
New to owning a vacation rental? Learn how TurnKey can help you maximize your revenue here.