Advice for First-Time Vacation Rental Investors
Real estate investment is an excellent way to grow your wealth. It can offer a relatively hands-off approach to bringing in a steady income and earning value appreciation on your property. And despite the economic troubles that have been brought about by the pandemic, the vacation rental market continues to flourish.
Among other reasons, more and more travelers are discovering vacation rentals to be more accommodating and cost-effective than hotels. This is leading to people planning longer and/or more frequent trips, whether for business or pleasure, which means that we can expect the vacation rental industry to continue growing for years to come.
Of course, if you’re planning to dive into your first vacation rental investment, it’s critical to prepare and learn as much as possible beforehand. That way, you can make sound decisions and minimize obstacles, ultimately positioning yourself for a lucrative investment. From determining the best location for your vacation rental to acquiring a favorable home loan, consider this practical advice presented by Catherine Bassick.
Making Sure a Vacation Rental Investment is the Right Move
Owning a vacation rental may provide a wonderful source of passive income, but it still requires you to do some work. Even if you hire a real estate agent and property management company, you will ultimately be responsible for the property itself and may need to exercise your authority as a landlord on occasion.
That said, when you prepare accordingly and purchase the right property, the pros can outweigh the cons. Along with giving you a place to stay, a vacation rental can quickly turn a profit. Over time, the property’s value can appreciate, meaning you make more money the longer you own it. Depending on how you use it, a vacation rental can yield various tax deductions on your mortgage, rental income, property taxes, and more. And history suggests that vacation rentals tend to do well regardless of the general state of the economy.
Working with a Professional on Your Vacation Rental Investment
As with buying a primary residence, the process of acquiring an investment property is much easier when you work with an experienced professional. For instance, Catherine Bassick can assist you every step of the way to find the finest property in the best location for your budget.
Picking the Best Location for Your Vacation Rental Investment
The potential profitability of your vacation rental investment will hinge on the location more than anything else. More times than not, vacationers are looking for beautiful, natural areas where they can relax and enjoy a change of pace from their everyday lives. You’ll also want to consider nearby entertainment, fun activities, restaurants, and other attractions.
Picking the Right Property for Your Vacation Rental Investment
Along with selecting the location, you’ll want to be vigilant about the particular property you choose. It’s not uncommon to purchase a fixer-upper and turn it into a profitable vacation rental. But for that to work, you have to be OK with performing a variety of repairs and home improvements (or paying contractors). With any property you consider, be sure to factor in all of the operational costs with the estimated rental income to determine what your return will be.
One practical way to start this process is to look online at home prices in the area you’re considering. That way, you can get an idea of the type of property you will be able to purchase with your budget (in Boston, homes sell for around $735,000 on average).
Evaluating Your Financial Standing with regards to Vacation Rental Investment
Before shopping for a home loan for your investment property, take an honest assessment of your financial situation. If you’re not sitting in a good financial position, you might want to think twice about purchasing a vacation rental because it’s basically a second mortgage.
Review your income (including your expected income for the next several years), your debt-to-income ratio, and your credit score. These factors will play a major role in the type of loan you’ll be able to secure; if you can’t get a favorable loan, it will ultimately harm your profits.
How Much Cash to Put Down on Your Vacation Rental Investment
To secure a good loan, you will need to budget for at least a 20 percent down payment. But don’t stop there. The more cash you can put down, the better. So, offer as much money up front as you can, and it will show lenders — and sellers — that you’re the best candidate.
Getting a Loan for Your Vacation Rental Investment
If you have a credit score of at least 720, you should be able to qualify for a conventional loan, which is the best option. Conventional loans are typically the cheapest for investment properties, since FHA loans, USDA loans, and other government-backed loans are not available for investment properties. Along with offering a good down payment, provide lenders with your expected rental revenue and expenses to improve your chances of getting the loan.
Now is an excellent time to invest in a vacation rental. However, before you get too deep into the process, make sure you research and get your ducks in a row. The advice above will help you get off to a great start, but keep learning as much as possible so that you can position yourself for long-term success in the real estate investment game!
Are you looking for an award-winning agent to help you get started in real estate investment? Contact Catherine Bassick today by calling 617-800-7764.
Catherine Bassick Fine Homes and Estates
Senior Global Real Estate Advisor
Brokered by EXP Realty
MA LIC# 9558155
CA DRE# 01380305
• Sold The First Single Family Home Over $100 Million in U.S. History
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