Buying a Vacation Rental: Tips for First-Time Investors

Purchasing a vacation rental home is a big decision, but many people are making the move to real estate when it comes to investments because it’s a relatively easy way to diversify a portfolio and earn extra income throughout the year. Whether you want to buy a pre-existing vacation home or purchase a house with the intent to make some renovations for renters, there are quite a few details you’ll need to work out. Securing funding is, of course, one of the most important things to consider, but you’ll also need to make sure you’ll be able to keep up with the maintenance and insurance on the home.

Location is another crucial element to consider since you won’t want to be limited when it comes to the amount of time you can rent the property out during the year. You also want to make sure the home is in a prime spot as far as access to entertainment, activities, and/or restaurants. If you’ll also use the home yourself, think about how far away your year-round house is; will you be able to make the trip to take care of maintenance or oversee repairs?

Here are a few things to consider when you’re ready to invest.

Find Funding

Few people have the money to shell out all at once for a vacation rental purchase, so a loan will probably be the best way to go. Keep in mind, however, that there are many different types of loans, and some are better for investment properties than others. For instance, an FHA loan is popular with first-time homebuyers because they don’t require any money down, but they don’t apply to investment properties. A conventional loan is best in this situation because there aren’t as many rules about the type of property you can buy, but keep in mind that the down payment requirements are typically much higher than with a government-backed loan.

Rent It Yourself First

If you find a property you like, or if there’s one available to rent in the area you’re attracted to, consider renting it out yourself to try it out. This is the best way to research the space since you’ll be able to see firsthand how things work in the neighborhood, how many tourists will be around, and what you can improve upon.

According to Money.com, “Before you lock yourself in, rent a place (more than once is best) in the area you’re considering to be certain you’ll actually enjoy it. Stay for at least two weeks to make sure you don’t grow bored on extended stays. Try to visit in different seasons to understand weather and crowd patterns. For example, you may realize that you hate needing to book a dinner reservation well in advance during the summer busy season, when you’re there to relax.”

Lock in the Details

There are so many details to consider with an investment property, and it’s important to think about them all before making a decision. Things like security, filling the home with furniture and necessities, and maintenance are all important factors to consider. You may need to hire someone to take care of the property if you don’t live close, and that will add onto your yearly budget. Installing a security system— even if it’s only a surveillance camera or two — can help you keep the property safe while giving renters peace of mind, but you’ll need to decide which kind you want as there are many options on the market.

Renovations?

Even if the home you invest in is brand-new, there may be some renovations or updates you’ll want to make to attract renters, such as a new bathroom or extra spaces to sleep. These changes don’t have to be costly, but some of them will be, and they might also add on to your insurance costs. Do some homework to find out what renters in the area are looking for in a vacation home. If you’re going to add onto the existing structure of the home, you’ll likely need a permit, though the laws vary from state to state. Do a little research to find out which changes fit your needs best. Demolishing a load-bearing wall, making changes to the electrical wiring, and building a fence are common renovations that require permits. 

Buying a vacation rental property is a big decision, but it can ultimately be a very wise choice. The key is to plan well and talk to someone who has already been there to get advice on which steps to take. With the right preparations, you can create a rental property that brings you income and peace of mind as you diversify your investments. 

Additional Resources

• Smart Tips For Buying Waterfront Home by Sharon Paxson: Learn what investors should be considering when buying a home on the waterfront.
• Are Vacation Rentals A Smart Investment? by Joe Boylan: The decision to buy a home to use for short term or some other vacation type rental must be considered seriously as there is more than meets the eye when it comes to these types of investments.