Buying your Vacation Rental
Like any other rental property purchase, you have to do your homework before you buy. That homework comes in a few different categories:
Financial: Before you start looking, do a financial feasibility study, comparing expenses to income. This way you will have some idea as to what to look for in terms of price, amount of repairs you are either willing to do or to pay for. The financial perspective will also have some bearing on what location you can afford. We all know that a vacation rental on Malibu Beach would rent well and bring in lots of cash... but not many of us can afford that property!
Vacation Market Research: Meet with owners of other vacation rentals or property managers who mange vacation rentals, they can be a wealth of information. The main information you want to get from them is:
• How many days per year can I expect to rent the property?
• What is the rental rate for various sized properties (studio, 1 bedroom, 2 bedroom etc.)?
• What type of property rents the best and most often?
• What is the best type of property to own; single family detached, condo, townhouse, duplex?
• For each size of property, how many guests should it be able to sleep.
When Kris and I are teaching our classes and seminars, we often hear our students lamenting "I've done everything wrong! If only I had this information before!" Since we all get plugged into new information all the time, it is never too late to incorporate that information or process into what we already have in motion. Perfect world for doing you due diligence on vacation rentals is before you buy a property. In fact, let me just spell out the "perfect world" process and then you can figure out where you can best slip into it with your own situation.
Decide on 2 or 3 geographic locations where you think would be best for you to buy a vacation rental.
Working with a Realtor or on Craigslist, find out what the prices are for properties in those areas. Note: This may cause you to have to decide against one or more of the locations you selected. That's OK. If available, look at new areas to replace those or just move forward with the ones you have left.
Working with a Realtor or a Property Manager of vacation rentals. Find out
• How many days per year can I expect to rent the property?
• What is the rental rate for various sized properties (studio, 1 bedroom, 2 bedroom etc.)?
• What type of property rents the best and most often?
• What is the best type of property to own; single family detached, condo, townhouse, duplex?
• For each size of property, how many guests should it be able to sleep.
Put together a financial proforma. This is where the rubber meets the road. Your financial proforma will tell you things like how large of a loan you can afford to carry on the property, how many days per year you will need to rent it. What size and price of property works best in your scenario. Match these up with the demands of your market and it will start be very apparent if this deal makes sense or not.
Pat Larkin has over 30 years in the property management, home-building and land development industries. Until 2009 they owned and operated one of the largest residential property management firms in Southern California. They have since established "Manage To Make Money" which is a resource for property owners, property managers and investors. A great place for them to "share their stuff" (help others to learn from their expensive and painful life lessons) in their tenure.