How to Invest in a Vacation Home: Eleven Essential To-Dos

With spring and summer rental seasons almost in high gear, many potential investors are thinking: Now’s a great time to buy and rent out a home. And it’s not too late to find a property, whether a single-family house, condo or building with several units.

 

But to do so effectively and make a profit requires doing lots of homework. You must determine whether it is best to serve as owner and manager or hire someone else to take charge who will tackle the day-to-day needs and emergencies and receive a commission. Along the way there are other considerations such as whether to keep adding to your real-estate portfolio as well as if you should sell some of your holdings.

 

Jon Zimmerman

Joe Milo

To understand the best approach, we talked with two investment partners, Joseph Milo and Jon Zimmerman, who operate Paradise Vacation Rental Management in Palm Beach Gardens, Fla. (http://paradisevacationrental.com/). Previous to their partnership, each owned and operated their own vacation listings. The following are eleven essentials they say will help lead to success. Also, do extra due diligence by reading books about real estate investing and prior blog posts on the Learn From Green website:

 

 

 

1. Get started. Some like to tiptoe into the process with one home, condo, or multi-dwelling building while others prefer to jump boldly in and own multiple properties of any type. Milo thinks it’s wiser to begin with one building with multiple units to be able to oversee maintenance and contain expenses and gain some economies of scale. In the past, Zimmerman had several properties throughout South Florida and found that, though profitable, it was a “headache” to manage them and stay on top of what was needed. They’re now in the process of purchasing land where they plan to construct several rental cottages, so they can easily manage them due to their proximity and gain the economies of scale, too.

 

2. Decide on a price point. Some go for less expensive and listings that may need work, then benefit from the uptick in the investment. By going the fixer-upper route, owners can also add their imprint from the get-go and decide on the layout, materials, and finished look. “We’d rather make the improvements than pay for someone else’s work and sometimes their mistakes,” Milo says. Others like going for finished, costlier listings, which may generate less profit but also less of an unknown. Zimmerman says it’s important to consider mortgage payments unless you’re making an all-cash purchase. “Be sure you’re covering all your costs and know that you aren’t likely to rent any properties all 52 weeks of the year, especially with a vacation home that may reflect a seasonal location. (Renters may not make a beeline for South Florida in the dead—and heat—of summer.) Few vacation homes don’t have a down time. Milo prefers to recommend that those new to the investment process should start on the low, less expensive end as a safeguard.

 

3. Take on all the roles, hire an outside manager or sometimes be the manager and not the owner. They’ve tackled all the various roles and prefer to serve not just as owners but also as managers. However, they have sometimes hired outside help if the property is too far away from their base or they have too many listings to manage. They’ve also served as managers for other owners’ investments. “There is something nice about checking up, booking, cleaning, maintaining, and collecting a check from others,” Milo says. In those cases, they usually have charged 15 to 30 percent of the rental payment as their commission.

 

4. Location, location, location. Each geographic area suggests certain highly desirable features about the location that should be considered. It may be a beach, town, restaurants, cultural destinations or sight-seeing attractions such as a park or zoo. In the men’s South Florida location, they say it’s both proximity to the beach and walking distance to a town. So, it’s key to do your research and decide. The best locations will dictate a higher price tag, unless the condition is so run down. These days it’s also essential to know your city, town or village’s rules about rentals since some are cracking down and not permitting short-term rentals of less than 30 days while others don’t permit rentals each year for more than 40 nights. Check with a city or town’s planning board and go online to find out specifics. Many rules right now are in a state of flux.

 

 

5. Put together the right amenity and furnishing package. It comes down to knowing your market again and what appeals to renters most. In their South Florida location, Zimmerman says a swimming pool and sometimes also a hot tub are essential. For one listing a block from the ocean, tenants who came spent almost all their time at the pool rather than at the beach, he says. “Even if the home or building shares a pool, it’s still preferable in 80 percent of the cases,” Milo says. Furnishings should be clean, nice, comfortable, and highly durable since those who rent, especially with kids and dogs, won’t take as good care of your stuff as they would of their own. But you needn’t go to the most expensive stores or online resources. Be sure to include a strong Wi-fi network, keep the premises super clean, and provide instructions for all equipment in a folder or on an online resource list.

 

6. Screen tenants. You never can be too safe or do too much background checking. These investors take information about prospects from their drivers’ licenses and check them out, though they once were scammed by someone who had stolen a license. They also always talk to the person by phone, ask why they’re coming, how many plan to stay with them, and their ages. Then, they share their house rules such as no loud noise after 10 p.m. And they never rent to anyone under 25 years of age because of the possibility of more showing up and loud parties. They also take a security deposit of several hundred dollars.

 

7. Be a responsible landlord or manager. You, in turn, need to do your part and be available to handle emergencies—the heater goes out in the dead of winter or a toilet stops working in the middle of the day. Or simply be available for questions.

 

8. Charge competitively. Look at similar listings online and area B and Bs and small hotels to see what they’re charging. Then, consider charging a bit less. Know that you as the owner should pick up monthly fees for electricity, heating, pest control and basic supplies such as toilet paper, paper towels, and garbage bags or at least the first round of necessities. Also stock the kitchen well with pots, pans, spices and have fresh towels and linens for bedding.

 

9. Set up a Facebook page. Besides generating rentals through word of mouth and paying for some ads, maybe in local publications and through the Chamber of Commerce, you may want to have a FB page designed to showcase your listing or listings. Add good quality photos, pertinent information such as the amenities and house rules, post regularly to generate continued interest, and seek reviews from guests. Reviews can make a huge difference in attracting traffic. And respond promptly to any negative postings. You also may want to post your listing with other firms involved in the sharing economy such as Airbnb, VRBO, HomeAway and One Fine Stay. These firms will take a cut, but they offer a wide international reach.

 

10. Add to your investment portfolio. While it’s tempting to start adding more homes if yours are renting well and you’re making money, make sure you have the process down 100 percent before you overload yourself or your rentals may suffer. What that means in part is answering inquiries promptly, responding to renters when they don’t know how to use the pool heater or plug into the Wi-Fi. But you also should enjoy the process and have a good return on investment. What’s considered good money? Of course, that varies but these partners like to average between 12 and 15 percent of a return after expenses are subtracted such as the monthly mortgage.

 

11. Decide when or if to sell. Again, this is a business decision, not a TV sitcom like “Newhart,” which was about the late actor Bob Newhart and his wife running a country inn in the Northeast. Look at the cash flow, consider whether you’re enjoying the work and study your market. Look at your market’s house sales—if prices are close to the asking or far below as well as inventory available. If properties have hit a possible high and your home needs an expensive new roof, it may be time to sell and find another area ready to take off. The longest these men have held a property to date is five to six years, but other investors hang in for much longer, sometimes decades and even generations.

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