Owning a vacation home is an exciting venture. As the owner, you get the best of both worlds—a home you can earn revenue from and a home you and your family can visit anytime they please. However, as with any investment, it is important to know some specifics before you sign off on a new loan. Regardless of the expertise you seek, these are the things you need to know about buying a vacation home.
Reflect on Whether it is Right For You
Just like with any endeavor, you will have to be honest about whether owning a rental will suit your lifestyle. When you initially buy the property, you will likely have to renovate it and keep up with repairs over the years. If you are not skilled in carpentry, plumbing, or installation and you do not know anyone who is, you may have to pay out large sums to keep up with maintenance costs. In addition, even though your property will strictly be for vacation purposes only, you will still have to meet with the renters and screen them. Your renters may come and go quickly throughout the season, so you will have to screen people quickly to be sure they do not have a criminal background or a history of fiscal irresponsibility.
Be Sure You Can Afford It
Before you make the investment, you should evaluate how much you can actually afford. If you already have mounting debt, for example, you should clear out all outstanding debts before you invest. Do not jump into real estate thinking that you will make a large return as soon as you buy the property. You will go through gaps without business and make unexpected emergency expenditures when something goes awry. If you do not have your debts lowered, this can actually become a bigger financial strain than it is worth. In addition, you will make it difficult on yourself to obtain a loan if creditors see that you have high debt or you have been negligent on past payments. Many vacation home buyers hope to capitalize on renting out the space. Remember these situations aren’t all profit; you’ll pay for credit checks through companies like Transunion SmartMove, be responsible for outfitting and furnishing the home in an enticing manner, and handle any fees that you may face if you’re attempting to rent out a home within a Home Owner’s Association.
Flipping a Vacation Home May Not be Wise
Sure, the idea of flipping a home from drab to fabulous may seem glamourous, but it takes a lot of hard work and investment. What fits into an hour of television can actually take weeks or months to complete. Most people who flip homes have home renovation experience and are comfortable being hands-on. Unless this is you or you know a qualified contractor, you may be better off buying an affordable property that is already well put together.
Prepare for the Off Season
Even if you live in a place like Denver, which is famous for experiencing more or less three hundred days of sunshine a year, there will still be on and off seasons. You will have to structure your pricing and your budget to accommodate these gaps. Perhaps you can strategize to fill these vacancies as much as possible to increase revenue. Perhaps if you live in a warm location in the winter, you can advertise to the snowbirds who come in from the north, midwest, and northwest. Similarly, you can lower your rates in the off-season that may draw people from nearby who are looking for a staycation or are on a business trip. Adjusting your rates throughout the year can help bring in more renters.
Be Realistic About How Much You Will Visit
Part of the appeal of owning a vacation rental is the idea that you, your family, and your friends can visit it at any time. While this is a very attractive notion, many owners of vacation rentals actually find that they do not visit their property as often as they initially thought. If you are in the market to buy a vacation rental, buy it in a place you enjoy so that you will make it more of a priority to visit.
Create a Business Plan
Before you buy, ask yourself what you want out of this business and create a detailed business plan. Write down why you want to buy a vacation rental and what your goals are. Unless you have extensive knowledge in finance, it may be a wise choice to hire a financial advisor first. A professional advisor will ask you what your goals are, organize and analyze your financial records, and outline the best strategy to achieve those goals.
Buying a vacation home in an exciting milestone, but be wary of the challenges and costs you’ll face when making your purchase.