5 Tips For Buying A Vacation Rental Or Investment Property
This is a great time to consider buying a vacation rental or investment property. The market is thriving and investing in real estate for income is a smart financial move, as long as you are financial stable enough to maintain it. There are a few idea's you should consider before you get started. Do you want a flipper and is this the right time to be flipping a home? Are you planning on holding your investment property or vacation home for an extended amount of time? Do you think that a vacation rental or an investment property would fit you and your needs the best, and how do you manage your new investment once you have closed escrow? This article has answers to all of those questions and will help you as you move forward into your next real estate adventure.
#1 Decide If You Are Going To Hold Your Property Long Term Or Not
There is a term often used in real estate that is "a flipper". This is a house that you buy, make the necessary updates and repairs, put some work into and then sell at a higher price then you bought it for a short time later. If you plan on doing this then you will want to consider the market you are buying in. If the market is nearing it's peak then you will not make any money on your investment and you may even lose money in the process. If the market is bottoming out and you have the income to buy a house and fix it and wait awhile for the market to go back up, then this is a great way to make some money in real estate. Paul Sian has a great article called Tips For Buying An Investment Property that describes the fix and flip process in detail. Vacation rentals and investment homes (long term rentals) are more likely to bring you steady income over time and pay off better in the long run as long as you have the managing expertise to maintain them. If you are looking for an investment that you can hold long term that will continue to generate income for you, or if it is the wrong time in the market for fixers and you want to start generating income, then you may want to consider this method as opposed to a fixer.
#2 Decide Whether You Want A Vacation Rental Or Investment Property
This decision is going to rest entirely on you and your ideas about your investment. Are you looking for a home in a vacation town that you can use every summer for a couple of weeks, or on the weekends and rent out the rest of the time for income or are you looking for a house that you can lease to someone else for an extended amount of time to generate income? If you are unsure about what you want your ultimate goal to be then you may want to consider looking into what the benefits are to each investment and then decide which choice will fit you the best. Chris Highland wrote an awesome article comparing the benefits of buying a vacation home or a vacation rental in her article "Considering A Second Home?".
#3 Decide Where You Are Buying A Vacation Rental Or Investment PropertyWhether you are buying a vacation rental or investment property you will need to carefully consider where you are buying it. If it is a vacation home then you will need to think about not only your habits as a vacationer who may use it, but also the habits of other vacationers that will use it. First you should consider that most people go on vacation to get away so a home with privacy, such as one in the country or forest that is within walking distance or a short drive to town, will be more pleasant for you and your family as well as anyone who may want to rent it. Also is it near a body of water? Many people like to hang out on the beach on their vacation and a home that is lakefront, oceanfront, creekfront, or riverfront is going to do a lot better in drawing people in then one that is not. Also consider the lifestyle of the location...make sure that the house you are looking at matches the atmosphere of the community. If it is a condo near a lake it may not be as appealing as a small rustic cabin near the same lake. The feel of the lakeside town will most commonly be small and rustic so the cabin would be the charm that the person going to visit is looking for. Another thing to consider is the view...like any home the better the views the higher the price! If the house you are looking at using is a vacation home with great views then more people will be interested in staying there. Tim Anderson and Harry Chandler wrote a great article about this called "How to Choose the Perfect City for Your Vacation Home".
If you are thinking about buying an investment property to lease long term then you will want to look at the neighborhood. Remember that a beautifully designed home in a bad neighborhood is going to have to charge less rent then the same home in a better neighborhood because no one will want to live in the bad neighborhood. Also if there is a lot of vandalism in the bad neighborhood the cost of upkeep plus the lower rent may cause you to end up losing money rather than making money. Keep in mind that a nice house in a nice neighborhood is wonderful unless you have obnoxious neighbors that cause all of your renters to pack their bags and head for the hills. Consider talking to the neighbors before you purchase the house you are planning on renting.
#4 Discover All Financial Aspects Of The Investment Before You Buy
There are two financial mistakes that are very common for anyone who is buying a vacation rental or investment property. The first one is that the buyer will get a loan for a second home instead of for an investment property. This is very important because a second home cannot be used to generate income. A second home must also be a reasonable distance from your primary residence and you must have a legitimate reason for needing a second home. However, if you get a loan for an investment property then it can be anywhere, you can generate income, and you don't need to have any reason for buying it other then that you want it! Luke Skar wrote a great article- "Second Home Mortgage Information" that explains this in more detail.
The other financial mistake that is very common is an idea that you when you are buying a vacation rental or investment property all you have to do is find someone to rent it and then start collecting a paycheck. This is not the case! If you are a homeowner and you are renting your home then you are responsible for the maintenance and repairs on the property! This may seem like common sense but many houses that are rented are in disrepair due to homeowner neglect. There are a number of basic maintenance jobs that must be done regularly in order to rent the property out, Lynn Pineda wrote an article called What to Consider when Investing in Real Estate and The Big WHY that has a section on managing your real estate investment that will help you to get a better understanding of what will need to be maintained on your property. Check your state, county and city codes, rules, and mandates to make sure that you are up to their standards as they will vary depending on where you are located.
#5 Get Some Insider Tips On Managing Your Vacation Rental Or Investment Property
If you have decided on what type of property you are looking for and where you are buying a vacation rental or investment property then you are going to look at how you are supposed to manage it once it is yours! There are five pretty common practices among anyone who owns an investment property. The first one is that you should keep the costs within your budget so that you don't fall into debt. The second is to maintain open communication with your renters. The third is to maintain the property and keep up with necessary repairs. The fourth is more common to long term rental property owners and that is to screen your renters very well before you rent to them and the last is the very most important of all...Get EVERYTHING you and your renters agree to in writing!