Posted by Tiffany Yang ● Mar 22, 2020 9:00:00 AM
Things You Should Know When Buying a Vacation Rental Property
Are you ready to play the real estate investing game? As the nation’s leader in rental loans, we’ve worked with investors of all sizes and have seen all sorts of scenarios and with that experience, we have compiled a short list of things you should consider when investing in a vacation rental property.
- Where to Start?
Vacation rentals (also known as short-term rentals) are typically popular to own, as many rental property owners fall into being a landlord by simply purchasing a secondary vacation home that ends up being a short-term rental on popular platforms like AirBnB and VRBO. This also makes them a great avenue for revenue! You can earn more weekly than long-term rental investors do with 12-month leases, but before you go touring houses, you should consider how every successful investor has a strong team behind them, ultimately helping to make sure their investment journey runs smoothly.
Your best partner will be your trusted realtor. You should have one local to where you plan to buy your vacation property. They can provide invaluable local housing market insight and more importantly, they know how to negotiate.
- The Locale and Region
Although many investors choose to invest locally and sometimes near their primary residence and like mentioned earlier, many fall into owning rentals by simply purchasing their own second/vacation home and later using it as a rental. In those cases, you are most likely already familiar with the area. Today, investors are acquiring properties across the nation, even in places they’ve never lived before. There are “best investment spots” lists available to you with a quick search on Google or you can check out our 2020 list here.
It’s important you know the locale and region so you are prepared for anything that may occur, including natural disasters. Another factor to consider before investing is how certain homeowners associations have implemented restrictions around making your investment property a short-term rental. Now this is information your partner realtor can provide to you. And since there are quite a few things to consider when choosing where to invest here are some additional questions you may ask:
- Is the state landlord friendly?
- What are the laws and restrictions around daily rentals?
- What's the walkability like?
- Are there other vacation rentals nearby?
These types of questions will help you determine how easy renting out your subject property will be and what you’re subject to as the investor and landlord.
- Landlord Expenses/Down Payment
Not only do you need a down payment, but don’t forget to consider what will need to be done to the subject property before it is rent-ready. At Visio Lending, we fund rent-ready properties so our investors are able to rent out their properties with no hassles and receive a steady cash-flow. You should first know of the obligated landlord expenses and then decide from there if you have room to do any cosmetic changes to a property if need be.
Now back to the down payment part- This is where an investor is defined apart from a consumer. With consumer mortgages, you often can go in with little as 3% down payment. For an investment property, you are looking at loan-to-value (LTV) of at least 75% and so this is when shopping for the right lender comes into play.
- Finding the Right Lender for You
Every lender with a vacation rental loan program will not be the same, meaning it's not apples to apples, it's more of apples to oranges shopping experience. When considering which lender to choose, often many investors consider the LTV (loan-to-value is the ratio of a loan the value of a property purchased, our maximum LTV is 70% for refinances and 75% for purchases. However, the lower your LTV, the better your interest rate) and how high of an LTV you can achieve. This is just one of the several things investors vet lenders for.
- Last, but not least- Are you ready to be a landlord?
It’s one thing to be the landlord and another to be a landlord with a property management company on hand. As a vacation rental landlord you are responsible for ultimately everything including knowing what insurance covers you and your guest and more time consuming, routine cleaning and maintenance between guests.
Luckily, you get to make the executive decision of hiring an experienced SuperHost to manage or a reputable property management company that specializes in vacation rentals.
Some questions you may want to ask before hiring a property management company are:
- Is the property close enough for me to access when need be?
- Are there too many properties to manage myself?
- Do I have the time to clean and restock my rental with essentials?
- What tourist attractions are nearby?
For more tips on how to manage your rental and insight about the market, check out our Vacation Rental Investor Resources