Investing in properties can be exciting and overwhelming at the same time. If you’re new to the process, it can definitely be intimidating. But when you break the process into smaller chunks, you can quickly understand that investing is definitely something you can pull off with success. To help you get started, here’s our guide to investing in vacation rental properties for beginners.
Figure Out Your Finances
Before you get caught up in taxes and rental rates and all of the other accounting related issues that come with investing, having a hold on your personal finances is crucial. Knowing how to create and follow a budget will help keep you stay organized once the passive income starts rolling in.
Investors who buy a property that needs a little TLC must factor in the money required for home repairs and maintenance issues. Paying off debt, saving money, cutting expenses, managing a budget and increasing your income are all things you should consider before you commit to investing in a vacation rental property and finding yourself in a financial situation that is out of your control.
Location, Location, Location
Before you can offer guests the vacation home of their dreams, you must first find the perfect home. Home acquisition can be an overwhelming part of the process. But taking your time to do it right may mean the difference between a profitable home and one that gets minimal bookings.
Keep in mind that location is the one thing about a property that cannot be changed. This means it should be a major factor in your decision. Take your time and do your research. Uncover areas that people will want to visit, and find a property that is within your budget. Here are some things to consider when searching for the perfect location:
- Seasonal Fluctuation. To maximize your profits, look for areas with multi-season appeal. It’s also important to understand heavy seasonal fluctuation in places like beach towns or ski resorts.
- Accessibility. What is the property’s proximity to subways, airports, bus stops, car rental facilities, etc? Your guests want to get to and from your home with ease.
- Attractions. This doesn’t necessarily always have to mean major attractions like theme parks or large museums. Perhaps your home will be right next door to one of the best coffee shops in the area. Look for selling points in the area around a potential home.
- Personal Use. If you plan to use the property as a second home for your family as well, keep in mind your extended family’s ability to travel to the property. What would be the best location for everyone to visit while still ensuring profitability for your rental?
Know The Rules
Not every home or neighborhood is zoned for vacation rentals. Part of understanding the market is understanding the rules and regulations that come with owning a vacation rental in a specific area. Be sure to check your city zoning and regulations and even your local HOA guidelines. When it comes to city zoning, it’s important to note that many cities across the country are implementing regulations specific for short-term rentals. This may include a stipulation that the owner must live on the property or that each unit must have a business license. Some areas also have strict rules about the aesthetics of the property; and if you’re intending to purchase property involved with an HOA, there may be restrictions on the amenities and programs you and your guests will have access to. It’s crucial to understand all of the regulations impacting a property before making your investment, as each city has its own requirements.
Narrow It Down
Once you’ve found the perfect location, it’s time to narrow your search down to a specific property. A focused analysis of the real estate market will help you decide what kind of home makes the most sense for the area. Are there a lot of vacation homes in this particular area? If so, what are their rental rates and how do their amenities compare to your potential property? Will it be easy for your rental to stand out from the others in the area? Take your time to research comparable properties and ensure the home you buy can compete.
Set Your Rental Rates
Rental rates will vary significantly depending on the location of your property. However, a common rule of thumb is to set the weekly rental rate at 10-20% of your expected monthly mortgage payment to make a profit. That said, location and comparable homes in the area play a considerable role in setting rental rates. If you’ve got a gorgeous estate right on the beach or a single family home just minutes from theme parks, you could get away with setting higher rental rates.
In addition to market research to understand your competitor’s rates in the area, part of figuring out the ideal rate is to calculate all of the other costs that come with owning and managing a vacation rental property. Paying to have it cleaned in between guests, property taxes, HOA fees and all of the expenses related to furnishing and maintaining the home should be carefully considered when mapping out your investment strategy. When you are figuring out how much money you need to make to make mortgage payments and then some, it’s also important to keep in mind the inevitable “down time” where you’ll have more vacancies than usual. It’s best to plan this out before investing so you can have a general idea of potential profitability.
Try It Out
Once you’ve bought the property and are ready to make guests’ dreams come true, stay a night (or a weekend) in the home to make sure it has everything your guests will need for a comfortable stay. Staying a few nights in the home will help you quickly understand what your kitchen needs, how hot/cold the house gets at night, certain sounds that could be annoying to guests, and other small issues that you want to avoid a guest having to deal with. Investing in the home is one thing, but it’s important not to skimp out on the features, amenities, and tools in the home that will make their experience comfortable and convenient. Be sure to get our vacation rental inventory checklist for all of the essentials!
Run It Like A Business
Having a detailed business plan is vital to your success when investing in a vacation rental property. Creating a solid team of professionals, from accountants to real estate agents, contractors, and attorneys will help divvy up all of the responsibilities so that you’re not overwhelmed. Find a mentor who can help you write down your business goals and help you take steps to reach them. While vacation homes are often feel-good investments that people relate to relaxation and precious memories, it is a business and needs to be treated as one.
Why Beginning Investors Need Bookfull
Investing is one thing, property management is another. Tasks can quickly pile up, and you can get overwhelmed in no time. But don’t worry. Beginning investors can rely on Bookfull to help them take care of all of their property management needs. Set rental rates, sync calendars, manage payment processing, improve your marketing and much more, all from one place. The best part? It’s FREE!
If you’re ready to invest in a vacation rental property and have plans to manage it yourself, Bookfull offers the tools to make it easy. Learn more about Bookfull, and try it for free today!