Investing in a vacation rental property can be an exciting and lucrative venture. With careful planning and smart decisions, you can turn a vacation rental property into a profitable source of income. However, like any investment, it requires serious consideration and effort to make it successful. In this post from Puttogo, we will discuss the steps to take when investing in a vacation rental property
Gauge the Market Carefully
Before you start investing in a vacation rental property, it is important to gauge the market carefully. Research the vacation rental market in the location you are considering, this will help you better understand the market and the potential rental income your property can generate. Gather information about comparable rental rates, average occupancy rates, and any seasonal fluctuations that will affect your rental income.
Our team has access to a powerful tool to analyze projected rental income, occupancy rates, etc. If you have located a potential short-term rental property and would like to confirm the potential ROI on the investment, simply contact us and we will analyze the asset and send you the report.
Officially Form your Business as an LLC
When you invest in a vacation rental, it is important to officially form your business as a limited liability company (LLC). A vacation rental property is considered a business, and an LLC will protect you from personal liability in case of any accidents or lawsuits related to the property. Consult with a legal professional to help you set up and register your LLC.
Choose the Right Location
Location is critical when investing in a vacation rental property. The location of your vacation rental will determine the potential rental income, so it is important to choose your site carefully. Look for vibrant communities with notable tourist attractions and amenities, nearby restaurants, shopping centers, and other attractions. Consider the accessibility to transportation and airports in the area.
Talk to Experienced Investors
It is important to seek advice from experienced investors in the vacation rental industry. They can provide you with valuable insight into the market, property management, and other factors that are critical to your success. You can also browse the internet for relevant blogs and forums that discuss investing in vacation rentals.
Acquire Appropriate Financing
Home Equity Loans are one of the least understood financing options available to novice real estate investors. However, a home equity loan is a great way to fund the purchase of a vacation rental as those types properties usually require a minimum of a 10 percent down payment. It is a massive upfront cost for most homeowners. Consider the possibility of using a home equity loan to cover the down payment. With this option, you can leverage the equity in your primary residence to finance your vacation rental property.
There are also little-known lending solutions such as Debt Service Coverage Ratio loans, commonly known as DSCR loans. A DSCR is a measure of the cash flow a borrower has to pay against current debt obligations for an investment property. A DSCR loan is a type of non-QM loan used by real estate investors to help them qualify for a loan based on their property’s cash flow, without having to verify personal income. Of course, the interest rates on those types of loans will be higher, however, if the numbers work and there is profit to be made, that shouldn’t stop a borrower for exploring these options.
Work with a Property Management Company
Owning a vacation rental property requires a great deal of time and effort to manage it properly. Consider hiring a property management company that will help you with the day-to-day operations of the property, such as cleaning, maintenance, and bookings. It may cost you some upfront investment, but a quality management company can help offset those expenses with increased rental income.
An experienced property management company can also help you to identify the best security options for your property, especially since they will be involved in showing and monitoring the home. You don’t need to spend a fortune on a managed security system anymore. Look for easy to install choices that you (or your property manager) can easily troubleshoot using an online guide.
Know Your Budget
Before you begin investing in a vacation rental property, you need to have a clear understanding of your budget. Consider your initial investment, maintenance costs, home insurance, taxes, and other expenses. Create a budget and stick to it. You don’t want to overspend and put yourself in an unfavorable financial situation.
Prepare Your New Vacation Rental
There are basic amenities and amenities that will get your vacation rental rave reviews. Opt for the second if you have the budget. First, make sure that the property is safe and functional. One often overlooked area is the range hood over the stove. If people choose to cook (which many longer-term renters do) then you need to ensure that the range hood is both beautiful and functional. Look for an under counter option that meets those two requirements and test it regularly.
Simple but luxurious additions can include a good quality shower head, plenty of accessible outlets (especially in the bedrooms), and high quality sheets. You can find soft and unique options online that will make your bedrooms stand out in aesthetics and comfort.
Evaluate Your Investment Regularly
After investing in a vacation rental property, it is important to regularly evaluate your investment’s performance. Analyze the financial statements, cash flow reports, and other relevant data to determine the profitability of your investment. Use this information to make informed decisions about your property, and if need be, to make necessary changes like pricing adjustments or upgrading your property.
Analyze Before Committing
Investing in a vacation rental property has enormous potential for returns, provided the process is approached mindfully. To successfully venture into this domain, one must put in considerable planning, research, and effort. Accurate analysis of the market and location is crucial, and the formation of an LLC should be considered. Consultation with experienced investors or consultants, delegated property management through a reliable management company, and sticking to a budget all play a critical role in maximizing profits. Continual monitoring of the investment will enable informed decisions for upgrading the property, thereby enhancing its revenue potential. A positive outlook and meticulousness while investing in a vacation rental property can result in a successful and fulfilling enterprise.
If you’re looking for a great vacation rental property in Atlanta, let Puttogo help you find the perfect one. Visit our website and start searching today.
Article by Sharon Wagner, Image via Pexels