Buying Vacation Property High Quality
In recent years, vacation rentals have become popular with investors as an alternative to traditional buy-and-hold rental properties. In this article, we will explore the opportunity that buying vacation rental properties can offer you as an investor, and whether these properties are something you should consider for your portfolio.
buying vacation property
You might find similar returns by buying two or three single-family homes with the same amount of capital, but few residential properties offer the appreciation potential of a trophy property in a vacation area. And managing multiple properties is more time-consuming than managing one.
There are, however, some markets with lower-priced properties suitable for vacation rentals. For example, Ohio State University has a base of fanatical alumni who visit Columbus, OH for football games, and short-term rental properties can be bought there for $250-300K.
In most cases, the property will be appraised as a house, as that will provide the lender with a more conservative valuation. In areas where there are a large number of vacation rentals with established track records, the appraiser may factor NOI into the valuation.
In addition to the cost of the house, you will also have to spend $30-$50,000 on furnishings: furniture, bedding, towels, silverware, champagne glasses, etc. These expenses cannot be bundled with your loan and will have to be paid out-of-pocket in addition to your down payment. This is no place to skimp, as whether your vacation rental gets a five star rating or a four star rating will partly depend on the quality of the furnishings.
Tip: In some markets, you may be able to buy a property that has already been a short-term rental and therefore already has the furnishings in place. In that case, you would not have to pay extra for the furnishings and you may be able to have them bundled into your mortgage as part of the purchase price.
As we saw in the previous example, rental income is based on what percent of the month you can keep your property rented (occupancy rate) and what the daily rate is. The seller is incented to tell you that the occupancy rate is 100%, and the daily rate is high.
Another option is to buy a property that has already been a short-term rental and therefore has a track record of actual rent history. Looking at historical rents will eliminate a lot of the guesswork for that location and property.
Property management is the Achilles heel of all real estate investing, but especially with vacation rentals. Whether your property gets 80% occupancy or 60% occupancy will depend in large part on your property manager; whether your property gets a five-star rating or a three-star rating will depend in large part on your property manager.
Most investors buy the property first and then look for a property manager, almost as an afterthought. In this business, you might want to reverse that: Identify the best property manager first, pick her brain about what amenities to look for, find what areas she manages in, and then go find the property last.
Are the salty breezes of the ocean calling your name? Or are the majestic mountain vistas and balsam-scented pine trees gently whispering in your ear? Whatever type of vacation location is running through your mind like a non-stop loop, before you plunk down your hard-earned cash or sign on the dotted line for that dream of a lifetime, there are some things to consider first.
This is perhaps the most important factor in preparing to purchase a vacation home. Take time to review your finances and determine what your budget is for your future property. The cost of owning a vacation home is not only what you pay for it, but also:
What exactly do you want or expect from a vacation home? Do you want peace and quiet where neighbors are few and your privacy is a top priority? Or are you looking to be close to the hustle and bustle of a busy downtown, restaurants and nightlife? Is boat access, a boat slip or dock a must? Is proximity to a large hospital or urgent care medical office important?
How easy or difficult will it be to get to your vacation home? Are we talking a quick jaunt up the highway or will you fly in through the nearest airport? Is train or boat access necessary? Are you willing to suffer through sitting in a traffic jam and will it be more than worth it to get there? These are questions to ask now before you decide on the location.
It may sound silly, but sometimes, planning the calendar year when you can take advantage of your new vacation home will help you relax more and enjoy it. Plus, it gives you something to look forward to.
You will most certainly pay taxes on your vacation home so why not be prepared? Review with your mortgage specialist or real estate agent what to expect with regards to property tax, but also consider consulting an accountant for any other tax issues regarding your vacation home such as selling it if you reside in another state. Some states charge buyers and/or sellers a conveyance tax when a property is sold by or to an out-of-state resident.
According to NAR, the typical price was $192,000 for vacation buyers, up from $150,000. Investors typically purchased a median-priced property of $143,500, up from $124,500. 39% of investors and vacation buyers paid cash for their property purchase while others financed their purchases.
If your goal is to own a vacation property, then now may be one of the best times to jump into the vacation home market because mortgage rates are still quite low and prices of homes may continue to rise.
Vacation rental management website Vacasa has rolled out its second annual report highlighting the best U.S. destinations to invest in a vacation rental property. It analyzed home sales and rental data in vacation areas around the country. Vacasa also found that 65% of people in the market for a vacation home haven't decided where to buy.
"Buying a vacation rental property requires more consideration than simply where you'd enjoy owning a vacation home that you could visit a few times a year," said Shaun Greer, Vacasa's senior director of real estate.
Those vacationers come not only for the beach but for more than 100 golf courses, a dozen or so live theater venues and a 1.2-mile oceanfront boardwalk and promenade presided over by the 187-foot-tall SkyWheel.
Did you dream of living in Walt Disney World as a kid? Still do? Well, buying in Kissimmee, 30 minutes southeast by car on the northwest shore of Lake Tohopekaliga, could be the next best thing. Part of the Orlando metro area, the city is home to about 71,000 residents and is easily accessible by air, rail, bus and auto.
Tucked between the Great Smoky Mountains and the Nantahala National Forest, tiny Whittier, North Carolina, is home to just about 5,600 people. An hour's drive west of hipster arts haven Asheville, the small town is close to big vacation attractions, including the activity-rich Eastern Cherokee Reservation and its Harrah's casino; Dollywood in nearby Pigeon Forge, Tennessee; and gem mining, hunting, fly fishing and rafting venues. Too small for a tourism board, Whittier and its surroundings can be found on North Carolina's state tourism website at Visitnc.com.
Many Americans contemplating a vacation home abandoned that dream when the housing market collapsed. But now that home values have climbed month after month, with the median price up about 20% since its bottom nearly three years ago, you may once again be toying with the idea of that lakefront, ski or beach getaway place. About 13% of homes purchased last year were intended as vacation homes, up from 11% in 2012, according to the National Association of Realtors.
Yet you shouldn't let the fact that the market has stabilized drive your buying decisions. Instead follow these seven steps to take to make sure a vacation home is right for you, and won't turn out to be an expensive headache.
This may sound obvious, but before you start shopping you need to be able to specify why exactly you want this second home. The answer should shape where you look. For example, 87% of vacation home purchasers in 2013 planned to use the property primarily to getaway with their families, according to the NAR. Thus the typical home purchased was an average 180 miles from the buyers' primary residence.
Buyers who plan to rent the home to others- as 25% of purchasers do- may want to choose a location with numerous seasons of rental demand, so you aren't limited to income only, say, three months of the year (likely when you want to use the home too). When you're viewing the home as an investment property you'll also care more about projected growth rates of the communities you're considering, as well as the health of the local economy.
Or if you plan to eventually move to the home full-time, as one-third of buyers do, you may decide a house outside of town is actually too lonely and inconvenient. Only 32% of vacation homes purchased last year were in a small town or rural locale.
My wife and I have three kids. When they were young we bought a vacation home near our house. We used it all the time. As the kids got older, though, we visited the house less and less. Weekend sports games, friends sleeping over, and church and school activities left too little time to get there.
If you are going to rent out the property, you will need to pay income taxes on the rental income you receive. Your property taxes may also run higher than what you pay now, either because the tax rate in the vacation area is higher than where you live, or because its a second home and not a primary residence. For example, the taxes on second homes in Florida are usually much higher than for primary residences.
Most buyers tend to be overly optimistic about how often they'll rent out the place. Talk to a local vacation rental agency about how many weeks of the year you can realistically expect demand. For example, even in a winter and summer destination such as Lake Tahoe you can't expect to fill the place every month of the year. 041b061a72