If you are looking for a tried-and-true method of growing your wealth and diversifying your portfolio, investing in a vacation rental property could be ideal. But you must learn about real estate investing and approach your first property with a strategy if you want to succeed. Here are some tips to help you do just that.
Formalize Your Real Estate Investment Business
Whether you plan to stop after your first investment property or buy several others down the road, it’s essential to formalize your venture as a legal business. By forming an LLC, you can receive pass-through taxation and protection from liability.
LLCs require less paperwork than some other structures while providing you with more flexibility. While you could hire an attorney to start an LLC, you can save money by going through a formation service.
Do Your Research
Any real estate investment expert will tell you that location trumps all other considerations when it comes to buying a vacation rental. It’s the best place to start because it is the one thing you will never be able to change about the property.
Do your due diligence on any property you consider and ensure it is in an accessible, enjoyable, and beautiful region. Here are some location-specific factors to think about:
- Proximity to amenities
- Crime rates
- Market conditions
- Demand
- Inventory
Keep in mind that purchasing a vacation home typically requires a substantial down payment of at least 20 percent so carefully examine your finances before buying.
Learn How to Analyze a Property
After narrowing your list of potential properties down to one or several, dig deeper into your analysis. Being as thorough as possible in your research of the market and demand will pay off down the road. Analyzing a vacation property is much different than analyzing a residential one. Consider what type of area you would want to take a trip to yourself.
Make sure the property’s location has plenty of attractions nearby and enough demand for those attractions throughout the year. For example, will people have things to do in winter as well as summer, or will you get all of your business during a single season?
Consider Vacancies
Vacation rentals are known for ebbing and flowing depending on location and time of year. If you purchase a property in the mountains, you will likely have more vacationers coming through during the colder months, while a house by the lake will see more traffic in the warmer months. It’s essential to establish your expectations for peak and off seasons so you can plan accordingly.
Furthermore, make sure you have a clear picture of the overall cost of owning the property. Knowing how to plan for vacancies will tell you how often you’ll need to budget for furnishing and housecleaning and how to navigate homeowners insurance.
Upgrade to Impress
Even if you buy a recently constructed home, you should plan for the possibility of making renovations and minor upgrades. Regularly research comparable homes to get an idea of what features and amenities short-term renters are looking for.
While you don’t want a cluttered space for your guests, you do want to stand out from other rentals by offering high-quality appliances, fixtures, and a beautiful overall design.
Recruit Professionals
Finally, don’t try to go through your first investment property purchase alone. Lean on the expertise of professionals, even if you have to invest significantly in their services. Ultimately, real estate investing is a long game, and you want to enjoy the adventure while building wealth.
Look to a reputable realtor when house-hunting and navigating the purchase process. Find reputable contractors who can handle any renovations necessary. And hire a top-notch property manager to handle maintenance, tenant payments, and other responsibilities.
Buying a vacation rental could be a great move for your investment portfolio and financial goals. Just make sure you learn about the industry, consider forming an LLC, and follow the guidance provided here. And keep studying vacation rental investing so that you can make intelligent decisions and steadily build your wealth.
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