There is a big difference between enjoying a vacation property and owning it. When you are on vacation everything seems a little better including the property and the location. Taking the step from renter to vacation owner is a bigger jump than most people realize. The numbers may look great on paper but there is a lot more that goes into the process than most people realize. Just because you love a particular location as a renter doesn’t necessarily mean it will be a profitable place to own real estate. Before you consider buying a vacation property there are a few things you need to know.
Know the area. A good vacation rental needs to support itself throughout the year. This requires you to know everything about the area. You need to know which locations are more desirable to renters. You need to have an idea if there are weather concerns for the specific location. You need to know if it is even possible to rent the property out. Many areas have specific guidelines on how the rental process works. If the property is located near a university you may need town approval to rent to college students. All of this information needs to be known before you get too far in the process.
Mortgage guidelines. Buying a vacation property will not be as easy as buying your primary residence. With any type of second home or investment property the guidelines completely change. Vacation homes are considered investment properties and require increased down payment, higher credit scores and lower debt to income ratios. The underwriting process is stricter and the process is typically a little longer. This isn’t to say it can’t be done but it may not be as smooth as your primary residence.
Local contacts. If something needs to be repaired in your home you most likely have multiple people you can quickly call. The same may not be the case for a vacation property. Depending on the area there may not be a huge database to pour through. You need will to establish numerous local contacts in every area from property management to lawn care services. You will lean on these contacts to help not only find tenants but to keep your property occupied. With a vacation rental the turnover is greater than a regular rental. Instead of annual leases you may go month to month or even week to week. This means you need to budget for a property management company to take care of this for you. If they don’t do a quality job it will impact the demand an ultimately your bottom line.
Time and effort. The most common thought process with a vacation rental is that you can stay in the property a few times a year and rent it out the rest of the time. This is a good theory but rarely ever works this way. It is human nature to get sick of things and eventually you will want to try something new. If and when this happens you will be stuck with a property in a location you are not crazy about. This would be ok if the property is profitable but if you are just breaking even it may not be worth your time and effort. Any type of rental property requires a great deal of both but vacation properties need extra attention. Before you buy you need to consider the time commitment needed.
A vacation property can be a great source of extra income but only for the right property. Just because you like a location doesn’t necessarily make it a great place to invest.