Is A Vacation Rental Property Right For Your Business?
By JD Esajian on June 12, 2015
With the unofficial start of summer behind us, many people have begun planning their summer activities. For most people, this means going to their favorite vacation spot with friends and family. This spot could be a few towns over or a significant car ride away. Whatever the distance; if you are a real estate investor, you have most likely considered the possibility of owning the property rather than renting it. In the right situations, this can make a lot of sense, but not every hot vacation spot means it is a good spot to invest in. Before you think about buying a seasonal vacation rental, there are a few pros and cons you must weigh.
While sipping your coffee on a glorious sun soaked morning, you may have a revelation to buy your vacation property instead of continuing to rent. In theory this makes sense but the reality may be completely different. The first thing you need to think about with a vacation rental is the area. You may enjoy skiing a few times a year but this doesn’t mean you want to own a property with winter weather. The same is the case if your rental property is near the water. Just because you love the beach doesn’t mean you want to maintain a beach property. The odds are if you own a vacation property you will take advantage of it at least a few times a year. If you don’t love the area you will slowly stop going to the property. This will have an impact on how you take care of it what you think about it. Anyone can like an area when they are on vacation. Before you make a snap judgement make sure you visit it a few different times and know everything about it. If you still love it and want to move forward you can move on to the next phase of the evaluation.
What do you want out of a vacation rental? Your goals for a vacation rental should be different from a local single family property. As high as a vacation rental may be so is the overhead. Instead of raking in the dough you may be lucky to scratch out a small profit. This may be just fine if you are looking to use the property a few weeks a year. If you are looking to use the cash flow to purchase other properties you may be disappointed. You should have an idea of what you want out of the property before you consider an offer. Many rental property owners are left wondering where all their profits are. They don’t factor in that since the property is out of area you need to hire a property manager. You also need to pay all of the utilities and the maintenance is higher. You should also account for the decreased rental demand in off peak seasons. The weekly rent you are paying for a beach house in July will not be the same as the rate in November. You will be lucky if you can even find a tenant. With a vacation rental the highs can be high but the lows can be even lower.
Before you think that vacation rentals are a bad decision there are two sides to every coin. There are many investors who have a few rental properties in their portfolio. What makes them so appealing is the demand they create in peak months. The best vacation rentals see a spike in the rents they can receive depending on their season. For a beach rental any time starting from May to the end of September is your peak season. In those five months you should be able to bring in enough rent to cover the rest of the year. You can do this by offering weekly leases instead of more traditional monthly or yearly ones. If you have a prime location and a well maintained property this should be easily achievable. It may take a while to get a good system in place to turn your leases over but once you do the property will run itself. Since the property is out of your immediate area it is important to have a good property manager, contractor and realtor to help ease the transition. Like most purchases in real estate it is all about location. This is by far the most important thing for any vacation property.
Making a rental property purchase should be treated like an investment. With local single family purchases there is only so much appreciation that you can generate. With a vacation rental if your property is well placed the value can skyrocket in a short amount of time. These properties tend to increase in value much higher and quicker than other traditional properties. The risk is greater because of the conditions but the rewards are often much greater as well. If the market changes and demand increases you can be sitting on a property that worth much more than what you bought it for. This does not happen with every property but it can if you have the right location.
There are many different ways to look at a rental property. The goals of one investor may be completely different from someone else. Never make a decision when you are on vacation. Gather as much information as possible but process it when you get back home. The euphoric feeling you have of being away may lead you to make a decision you regret. Vacation rentals can be widely successful but they aren’t for every investor.