Buying your first vacation rental? Here’s where to start
Whether you’re starting from scratch or changing your current strategy, vacation rentals can present a great investment opportunity. Doora Broker, Troy Palmquist, shares some strategies to help you and your clients make good decisions on the buying side and when managing your vacation rental.
At Doora Properties, we recently launched two vacation rental properties in Big Bear. These investments are perfectly suited to our business model and allow us to showcase our design and staging capabilities in a real environment.
A few months ago, my wife and I found one of these Big Bear cabins on a wholesale platform and bought it unseen. It’s in an area where we’ve known we’ve wanted a home for a long time, and from the photos included with the listing, we had a good idea of what we were getting.
Thirty days after the opening of the escrow, we closed: no inspections, no unforeseen events, no on-site visits. It was after closing time that we entered the house for the first time.
Now, is this something I would recommend everyone do? Definitely not. However, as a seasoned investor and someone who is comfortable looking at pictures and determining what needs to be done, the inherent risk was worth it to me.
We had a plan and knew exactly what we wanted to do with the property and in just under 60 days our vision became a reality: a beautifully designed and newly decorated vacation home ready to be monetized in the rental market.
If your clients have expressed interest in vacation rentals as a real estate investment or if you are interested in entering this market, there are some things to consider before and after your investment. Although they can be a great investment, they require more handling than other types of investments and can be more vulnerable to changes in taste and perception.
If you’re considering investing in a rental property, either locally or in an outside market, here are a few things to keep in mind, especially if you can’t get boots on the ground before making an offer. .
Buy with upside potential in mind, as you would with any other investment
You know the old adage: you make your money buying, not selling. Now is not the time to get impulsive and overspend beyond what is best for you. Take emotion out of the equation and make solid decisions based on the numbers you’ve gathered.
While you can crunch the numbers and look for continued profitability as your main criteria, you should invest with an eye on your eventual exit strategy. Look for a property that will retain or increase its value or look for one that can be converted into a long-term rental property should the market change.
Understand the scope of your updates and upgrades
Have a good idea of the updates and improvements you will be making to the space. For some rental properties, you’ll use builder-grade materials and steer clear of fancy bells and whistles. In more upscale markets, however, luxury fixtures and finishes are essential.
We were lucky that the bet to go without unforeseen paid off in our case, but we could easily have run into unforeseen repairs. Always make sure you have left yourself some money to deal with unexpected changes, if necessary.
In any case, make your decisions with your head, not with your heart. Remember that you won’t live there, so you don’t need to fall in love with the changes you make.
Hire a professional management company and interview several
Long-term rental management is different from vacation rental management. The objective is different and the timing of communication is also different. Make sure the property management company you choose is set up for the demands of the type of rental market you’re tapping into and offers the menu of services you’ll need to be successful and garner the rave reviews that keep your property filled.
At Big Bear, we found the perfect company and manager for our rental. Be sure to work with a property manager with specific experience in the short-term rental market. The requirements are significantly different from SFR; you need to make sure your property manager is set up for the additional services and shorter turnaround times required.
Also, make sure your management company is set up for the market segment you are targeting. For example, a luxury rental requires a different level of service than a more modest accommodation.
Convert an existing property, if possible
If you have an existing property, whether it’s a vacation home or an inherited property, try converting it into a vacation rental. It’s more than likely already stocked and fully stocked with the essentials, ready to plug and play with a few updates or upgrades.
If you are looking for an already completed setup, make sure the reviews are good and the property makes sense for the market. If possible, find out why the current owner is selling and make sure there are no HOA or local restrictions on the horizon that could affect your plans.
Follow some of the relevant Facebook groups and search online for tips from proven hosts
There’s no need to reinvent the wheel or figure it all out on your own. Be active in online communities of vacation rental owners and people located in the area where you are investing. You’ll learn from their mistakes, begin to master the best service providers, and find out which amenities and value-added features are most popular with area customers.
It took us almost two months to get up and running. It’s been two months of money coming out and nothing coming in. You need to know how long it will take you to start renting the property. This is especially important in markets where rentals are primarily seasonal and where you may end up going several months of the year without a consistent income.
Owning and operating these properties has been both eye-opening and fun, providing new insights into this segment of the investment market as well as profitability. Whether you or your client are considering this as a possibility, you are sure to learn from the experience.