Your Home: Considering a second home? Think about this.

As I write this, I am looking at and listening to the waves from the Atlantic Ocean breaking on the beach just about 100 feet from the back deck of our rented VRBO (Vacation Rental By Owner). I can’t help but consider how beneficial it could be to own a second home in a destination location.

In today’s market we are seeing more and more investors entering the market to purchase rental properties. But what about vacation homes?

My wife and I have gone back and forth on the topic of purchasing a vacation home. Although we have found some beautiful places to stay for a week or so, we just find it hard to tie ourselves down to one location. But if we did want to purchase a second home, what should we take into consideration?

Down payment. Unlike the purchase of a primary residence, investment properties require at least 20 percent down to show the lender that you have the financial wherewithall to afford the home and to limit the lender’s potential liability.

Location, location, location. Of course, this rule applies to all real estate purchases, but even more so when it comes to an investment/vacation home that you intend to rent. For your first investment property purchase, it would be wise to partner with a Realtor familiar with the rental market in your area. You might also reach out to your social network to see who you know who currently owns an investment property and pick their brain a bit. Show me a man or woman who owns investment properties and I will show you someowne who has lots of stories of how they learned lessons the hard way.

Should you hire a management company or not? For most people an investment property is a way to diversifty their portfolio. Not a job change. Remember the old saying, “If you don’t have a housekeeper, then you are one”? The same applies to investment properties. If you don’t have a management company to rent your properties and maintain them, then you just became a management company. So how much does it cost to hire a management company to do the work for you? A good rule of thumb is half of the first month’s rent when they find you a tenant and 10 percent of the rent each month moving forward. So if they rent is $1,000 a month, then they get $100. All of this has to be taken into account when you calculate your expenses to ensure cash flow.

Now let’s get back to vacation homes. With the proliferation of VRBO and Homeaway and websites like them, it has never been easier to rent out your vacation home. I think that we are on our ninth or tenth beach trip where we have rented someone’s vacation home for our stay. And we love it. Unlike a hotel or resort, we have a full kitchen, more space, and oftentimes a more secluded location.

These vacation homes that we rent also charge a premium for their location. In most cases, the beach homes that we have rented are booked solid for most of the year. And when I calculate what they are raking in each month, it is astounding.

So if you are thinking of purchasing a vacation home, perhaps you should consider traveling to a destination and staying in a VRBO. It may help to see things from the renter’s perspective. And if nothing else, you will get a great trip out of the deal.

If you are considering the purchase of an investment property, and would like more information about dos and don’ts, email me today. I would be happy to help.

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