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By David Dixon
One of the best ways to diversify your investments is to get into the rental property market. When you invest in a vacation home, there are many amazing possibilities to grow your wealth long term. Before making this decision, however, be sure you’ve answered these critical questions, as well as explored the many pros and cons outlined by Redfin, so you can be confident that your investment will pay off.
Is It a Smart Investment?
Before making an offer, it’s essential to know that the value of the home reflects the price you’re paying. If there’s a mismatch between what you’re paying and what it’s worth, it isn’t a smart investment. The easiest way to verify the home’s value is to use an online home value calculator. Along with verifying the value of the home, you should also get to know the vacation rental market in the area. You may already know that the location you’re considering is popular with tourists, but have you considered specific details, such as how convenient the home is to popular attractions and whether you can rent it year-round? Doing market research can answer these questions and give you an idea of the average rental prices in the area.
What Costs Can You Expect?
You probably have an idea of the primary costs, including a mortgage, taxes, insurance, and routine maintenance. But along with these fixed expenses, the Balance recommends factoring into your budget variable expenses. The most common variable expenses are home repairs, such as having to replace a roof or HVAC unit. If you buy a newer property or one that has been updated recently, you may have more time before things wear out. No matter what, though, your budget should include enough room for both fixed and variable expenses.
Have You Worked Out the Logistics?
If you plan on renting your home, the primary logistic considerations are how to market your property and handle renters. This decision will largely depend on how close you are to the vacation property and how much time you can spend taking care of things yourself. Many homeowners list their property through online vacation rental websites; if you go this route, you will still need systems in place to handle the logistics of cleaning and care of the property.
Another thing to keep in mind is that every vacation rental website has many available properties, so it’s worth your time to go the extra mile with your marketing. According to Coastal Living, having a great title, fabulous photos, and even your own personal website for the property are all key strategies for promoting your home.
Are There Factors You’ve Overlooked?
Even if you are already a homeowner, buying a property to use as a vacation rental comes along with some special considerations that don’t apply to your primary residence. For example, some towns have local rules and regulations concerning rental properties. Make sure you’re aware of any restrictions before buying a property so you don’t end up running into trouble.
If you’re buying a home that is part of a community or condo building, there may be HOA dues or other fees. This isn’t necessarily a bad thing — you just don’t want any surprises after signing a contract! In fact, as long as you’re aware of any fees, buying a property where some spaces are maintained for you through a Homeowners Association can make your life easier.
When all is said and done, one of the best things you can do is stay in your property overnight before renting it. If your experience leaves something to be desired, you’ll know what needs to be done to turn those shortcomings around.
In many ways, buying a vacation rental comes down to the experience. Answering these questions is the best way to make sure you can give guests an experience worth returning for, all while staying within your budget. This is what it ultimately takes to turn your vacation property into an investment that pays — for the short term and for your financial future.
