Vacation Rentals: A Good Deal May Come From AnywhereBy Paul Esajian on January 17, 2014
In the real estate industry, two investors can have completely different opinions on the same topic and be right. There is a large contingent of investors who will not go near any type of vacation area rental property. However, there are those who will focus exclusively on this particular niche. While you should never throw all of your eggs in one basket, you should not completely ignore an area all together. In the case of vacation rentals, there are plenty of good deals to be had, but there are also many horror stories to be shared. It is important to note that a good deal can come from any property, don’t pigeonhole yourself by avoiding vacation rentals all together.
A vacation rental is one that is located near a popular tourist destination. The allure of these properties is in their busy seasons. You can command much more for rent and can possibly even rent on a weekly basis. Sometimes you can get as much or more in six months than you can for a full year with other rental properties. Owning and managing these properties is completely different and comes with a unique set of rules.
With seasonal properties, the biggest difference lies in the costs. If the property is located near the water, you will have to pay flood insurance on the property. Even if you are not on the water, if it is in a flood zone, you need the insurance. This is federally mandated and can range from just under a thousand dollars a year to five thousand or more. This is just for the flood insurance and not including the homeowners insurance, taxes and mortgage obligations. With mortgage interest rates higher on investment and vacation homes, this increased payment eats away at monthly profits and can make these properties less attractive.
If you are 45 minutes away, it may not be realistic for you to hop in your car every time the washing machine stops or the front door handle is broken. You will either have to pay a property manager to take care of these tasks or be willing to get in your car a few times a month. This will cost you gas, time and test your patience.
For a vacation rental to make sense, there needs to be something coming in during off times of the year. There will be times when a tenant requests a yearly lease that overlaps with your peak season and puts you in a position to take less. This scenario is not ideal and your decision will impact how you feel about the property and ultimately if it makes sense for you.
Like most everything else in real estate, there are risks associated with everything. If you find the right property, in a good location, with a low interest rate and rents coming in, you will speak fondly of your vacation property. If your flood insurance was recently increased and you have had bad luck with your tenants or expected to be able to rent for higher, you will swear off the property and vacation rentals in general. Evaluate each property on your own and without taking too much stock on other people’s opinions. What works for you may not have worked for them.