Investing in a second home can be both exciting and overwhelming. If you intend to rent this second home, it adds an element of pressure too. While there are always risks, the vacation rental market has grown over the past few years.
The quality and quantity of available rental homes have improved so impressively that people who would have never considered a rental arrangement are now opting out of a standard hotel experience, instead preferring luxury rentals as their vacation accommodations.
Below are some tips to help you plan while minimizing your risk and maximizing your profits for your vacation rental home.
1. Not sticking to a plan and budget
Research the area before you make any type of financial commitment. It’s important to do your homework here; check mortgage rates, compare them with average rental prices in that area. One all-to-common pitfall is that investors get caught up in the glamor of a property or area and forget their original criteria. Realtor.com has a great tool that compares your costs of buying vs renting for a given location. Ask yourself, is it a good investment?
2. Going it alone
What will it take to deliver the best product and receive the most exposure? If you are new to real estate investments and/or the rental business, then partnering with someone more experienced or mentoring with a professional to learn the industry ins and outs is a great idea. It’s important to understand your own strengths and weaknesses and consider how those could affect your investment strategy. Finding a suitable partner to compensate will ensure that no aspect is overlooked and that you don’t appear unprofessional as if you are spreading yourself too thin.
3. Not keeping up with the Jones’
Your intention is to rent your new property for profit. Since you are competing against other rental owners (some of whom have years experience) and hotel resorts; your potential guests expect new finishes, professional hosts, and several amenities that provide something similar to a hotel experience. The most successful owners are the ones that treat their rental like a one-home-resort. Amenities that may seem excessive for personal use (such as a large hot tub, outdoor grill, etc.) can pay off in scores for rental properties and allow you to set your rates higher than you otherwise could.
4. Buying, then renting "as is"
Look for quality properties built with integrity. The house should have a solid foundation, up-to-code electric and plumbing, and be located in a prime location you feel confident will attract guests. If a property fits this criteria, be OK with putting up a little extra cash toward cosmetic improvements and finishes such as paint, countertops, crown molding, recessed lighting, stainless steal appliances etc. Making these improvements will increase the curb-appeal of your property and will drive more traffic to your home.
5. Not expecting the unexpected
A variety of people rent vacation homes. And, with luck your property will experience a lot of wear and tear due to high traffic. It's a good thing! Damages happen, so know your recourse and set your rates with enough left over to cover these potential incidences. Also keep this in mind when selecting materials and finishes; choose durable products.
Remember, it takes both charisma and financial savvy to set up a successful income property. Take it slow, stick to the plan and don’t be afraid to roll up your sleeves a bit.