Investing in a vacation rental property is a smart move as long as you target a location that is a tourist hotspot. You could spend vacations at the second home and rent it out during the remaining months of the year. The earnings from the rent could potentially cover the overhead expenses and part of the mortgage. Purchasing a second home is also a great option for people who hope to retire in a different location and would like to develop their future residence well ahead of time.
Selecting the Right House for Investing
The most viable investment properties are located in destinations near a seaside, lakeside, mountain, or national park. Vacationers also choose places close to casinos or amusement parks if they’re visiting with kids. You’ll work with an experienced realtor to help you pick out the ideal property that fits within your budget constraints. Do remember that purchasing higher-priced real estate is sure to bring you a higher return on investment (ROI) years down the line. Alternatively, you could look for houses in upcoming cities and neighborhoods that are likely to be appreciated by vacationers.
Estimate the Mortgage, Overhead Costs, and Potential Income
With the realtor’s assistance, you’ll calculate the different expenses such as utilities, monthly mortgage payments, operational costs, insurance premiums, and taxes. Also, make sure to account for any repairs and maintenance you’ll undertake to keep the place functional. You’ll factor in the typical occupancy rates during the peak and off-peak season months, along with the number of weeks when you’ll live in the rental. Add up the rent you’re likely to earn to estimate if the property is cash positive. Once you understand these numbers, you’ll know what you’ll be forking over out of pocket to determine if it’s within your financial means.
Financing the Vacation Rental
When applying for a mortgage to finance the vacation rental, expect that qualifying for the lending criteria will be easier. Loan providers accept that investors will live in the house for only a fixed time each year. Further, you’re not likely to be reliant on the rent income to clear payments. Accordingly, a down payment of 20% and a credit rating of 680 and above should be adequate for loan approval. You’ll also consider investing in amenities that will not only raise the property value but also make the place more attractive to vacationers wanting to rent the property.
Listing the Property
Listing the house on sites like Airbnb, Vrbo, HouseTrip, and Tripping.com is the next step. Also, get vacation rental software to help you manage the rental from a single platform. Communicating with guests, keeping track of scheduled bookings, installing keyless entry systems, and connecting with cleaning and maintenance personnel is quickly done through the app. The online tool also allows you to publish reviews, images, and property details, along with additional information that renters may find helpful.
Purchasing a house in a vacation destination to rent it out to travelers is an excellent way to acquire an asset. You can cover some of the expenses by using the rent money and invest in a property for spending vacations or perhaps, retiring in the future.
