Investment Tips for People
Considering the Vacation Rental Market
The introduction and success of Airbnb and
similar sites have made private vacation homes a fixture in the travel and
hospitality industries. Many are taking advantage of the vacation rental market
by purchasing homes in prime locations and offering their guests unforgettable
experiences. If you are ready to take the plunge and enter into the vacation
real estate market, then look no further. Below you will find some tips to help
ensure you invest wisely.
Purchasing
Property
The first step is research. As a first time investor,
you’ll want to aim for a vacation home that is not only in a prime location but
is sure to bring you enough revenue over expenses. While city centers may seem
appealing, there’s also more competition in those areas, which means you have
to keep rates low and you have high costs.
Seek the guidance of a knowledgeable Real Estate Professional
who can help you pinpoint the right market, with high occupancy rates, moderate
housing costs, and median mortgage rates that won’t leave you with a negative
return on your investment. Before buying a vacation home, however, it’s
important to know its true value. Consider the history of the home, the area
(is it growing, declining or leveled out?), and use an online home value estimator to help you
determine whether the home you’re buying is a true investment.
Costs
Along with costs associated with purchasing a
vacation home, here are some additional costs you will need to plan for ahead
of time:
●
Property taxes
●
Capital gain taxes/Income taxes
(federal)
●
Homeowner’s insurance
(which may include an umbrella policy and flood insurance)
●
Attorneys’ fees
●
Moving expenses
●
New furniture and appliances
●
Smart tech (keyless locks, wireless
thermostats, high-speed Wi-Fi, security cameras, smoke detectors,
etc.)
●
Property management
●
Cleaning services/supplies
●
Landscaping
●
Mortgage payments
Your rental rates should not only correlate to
the value of the property and location, but they should also cover your costs
as well.
Managing
the Property
From the outset, you’ll want to familiarize
yourself with all the time and costs that come along with managing your
vacation rental. To save the 10 percent to 30 percent fee management companies
charge, it’s possible to manage the home yourself. You can either choose to do
all the work (including housekeeping, repairing, and marketing) or hire
professionals to take on certain aspects of the management you don’t have the
time or expertise for.
If you can afford to turn a certain percentage
of your profits to a reputable management company that specializes in vacation
rentals in your area, then the return may supersede the cost. The
management company could weigh in on the best marketing for your home/location,
as well as ensure that the property is secured and maintained, that all your
guests have the right amenities and supplies, and that rental pricing is not
too low or too high.
Forming
an LLC
Most real estate investment companies decide
that in order to protect their personal assets it’s best to establish
themselves as a limited liability company. In order to create an LLC, you’ll
need to either go through a tedious process of paperwork filing or hire an
attorney or online
formation service to get things started.
The
Backup Plan
The short-term vacation rental market is still
uncharted territory; laws and regulations are currently being formed around the
industry. The real estate and travel industries fluctuate, and with the
uncertainty in the short-term rental market, you should have a back-up plan for
the property. Choose a rental home in slow seasons that you can use as a
vacation home yourself (bonus: there are tax benefits to this as well). Be
sure to choose a location that ensures you’ll break even or make a profit if
you need to sell. Finally, a short-term rental that you can easily make into a
long-term rental, if you desire, is optimal.
Real estate is a smart investment. Investing
in real estate as a short-term vacation rental will not only safeguard your
money, but it also has the added benefit of bringing in income. Do your
research and use all available resources to choose a great property in an
optimal location. Determine all the costs associated with renting a vacation
home, and with that knowledge, determine how much income you’ll need to cover
the cost — including property management. If you’re looking for a great way to
enter into real estate investment that can provide you with many low-risk
opportunities, vacation rentals could be the next step for you.
For the best real estate agent in Northern Colorado,
contact Paul Ross or ross-homes-noco.com.
Photo Credit: Unsplash
