What to look for when buying your first vacation rental investment

outer banks investments

There are a lot of considerations that you should make before you buy an investment property. We suggest meeting with qualified professionals, gaining a firm understanding of how adding a rental property will impact your portfolio, and ensuring that you are financially secure enough to optimize the benefits that can emerge from buying and managing a vacation rental investment. If your initial steps are out of the way, and you think that purchasing an investment rental is a logical and beneficial step for you, there is another major step:

Which property will you buy?

There are a wealth of options. If you think that you are set on investing in a vacation rental, which can be a very good idea, there are a few specific things that we think you should think about it.

First of all, choose a property that you care about in an area you like spending time. This is usually a good idea, because many vacation rentals will not generate as much profit as other types of property investments, but they do come with very unique benefits. These benefits include: you have a rental property at your disposal that you can visit whenever you want, and you have potentially purchased yourself a home that you will have the option of retiring in. So, if you like the beach, buy a beachfront property. If you prefer the mountains, buy in the mountains. If you’re an Arizona person, buy in Arizona. If you do not plan on frequenting the place in which you are choosing to invest, or don’t enjoy spending time there, then you may want to consider another type of investment. Investing in a vacation rental has the unique ability of providing you with your own “home away from home” while diversifying your portfolio and beginning to pay itself off.

As we mentioned earlier, having a keen, thorough knowledge of your current financial situation is essential. Know your limit, and spend within it. Do your best to avoid all thoughts which include spending outside of the comfortable range and budget that you have decided on. It’s very rare that vacation rentals will bring in massive early returns, so make sure that, to some extent, you are playing it safe. There are a wide range of vacation properties, and you don’t have to begin by investing an elegant beachfront manor. It’s perfectly acceptable to start small; manage your risk by purchasing something on the lower end of your range, learn the rules of the game, and then move up in the world of investment rental properties if you feel like it’s for you.

Do not forget to expect the “unexpected” expenses. This can lead to a very rude awakening. Just like any other home, a vacation rental will require constant upkeep, and maintenance is not always cheap. Maintaining the quality of the home is one cost, and repairing the inevitable failures of the home is yet another. You will likely need to hire people to be performing routine maintenance on at least a weekly basis. There will also be utility costs, as well as various taxes and insurance costs. That is just for maintaining the property! If you want the property to uphold its original value, you will also have to afford renovations, on both a micro and macro scale.

Wherever you choose to buy your rental property, make sure that you work with, or at least consult, at least one real estate professional in that area. A real estate agent or agency can provide unparalleled insight and expertise on your process and transaction, and many local economies that feature rental investments will have made a comprehensive, competitive, and efficient facet of the real estate industry that deals specifically with vacation rentals. In the Outer Banks, North Carolina, for example, there are top-tier real estate professionals active for nearly fifty years! They specialize in managing and selling vacation rentals, and can give a prospective buyer more insight than any other source of information. Almost every major tourism-based economy in the country will have similar services available to the buyer, which specialize in opportunities within tourism hot spot, and often in the surrounding communities as well. As appetizing as the sales department of many resort communities can make their properties out to be, there will always be certain aspects that only a local, specialized real estate agent will give you the full picture on.

Finally, since it is intended to be a vacation rental, you should ensure that you believe in the property’s inherent value to prospective renters. Find out how close to the heart of the area you are, in both aesthetic, feel, and location. If you are in an area that people make their vacation to for the purposes of spending time on the beach, you should be willing to pay a little more (or pay the same for a lesser structure) to be on the beach. For the traveller who is willing to pay a healthy sum, the difference between on the beach and “x minutes away from” the beach is the difference between optimism and skepticism about any given property. Find out what vacationers value most about the area you are considering investing in, and find a property that can be marketed as maximizing the bases that you want to cover.

We have a few other basic recommendations… Steer clear of timeshares, and buy an existing home, even if it is a pet project that you will need to spend a lot of time and money in renovating, rather than buying land and building from the ground up. Unless you have a keen experience of contracting in the area, the regulations of each specific state may surprise you, and a buy and build becomes a tedious and inefficient use of time and resources compared to simply buying a great house or buying a house and renovating it. Also, know how the area you are considering is impacted by the change of seasons, and act according; if possible, rent the property for a large majority of the high season to produce as much income as possible, and spend your time at the home during the off-season. Not only is this generally more profitable, but it can be quite peaceful to make your visit when the tourism season has quieted down a little bit; in most communities, at least.

As far as investment properties go, a vacation rental is not necessarily the most profitable, but it carries just as much benefits as many other choices that you can make; especially if you are looking to have your own consistent source of recreation for you, your friends, and your family at your disposal! Some things in life are priceless, and some of the benefits that arise from owning and maintaining a rental property fall into that category.


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