Investing in Vacation Rental Properties: A Comprehensive Guide

Have you been searching real estate listings for a vacation rental investment and feeling overwhelmed by all the options? With so many locations and properties to choose from, where do you start? The first thing to keep in mind is your budget. Depending on rental revenue to fully fund your vacation rental can put you in a financial bind. There are factors beyond your control that can impact your rental revenue and, in worst-case scenarios, can temporarily pause revenue streams for months or longer. When COVID-19 caused vacation rental shutdowns in Florida in 2020, several owners found themselves in a financial crisis because they did not anticipate the lost revenue stream and were barely able to cover their carrying costs during the shutdown.

What Are the Costs?

As you search for your property, consider both the obvious costs (mortgage, utilities, insurance, property taxes, and Condominium Association Dues) and other expenses such as maintenance and furnishings. When creating your budget, factor in the set monthly costs, maintenance (budget between 1% to 4% of the property's value annually), furnishing upgrades (renovate every 7-10 years or more often depending upon occupancy), and property taxes.

Work With a Local Realtor

Collaborate with a realtor who is familiar with the local vacation rental business. They will have a pulse on the local industry and can guide you to the best options. Once you've narrowed your search, begin gathering the rental history of the properties you're considering (assuming they are currently rentals). Purchasing an established rental may be the best option for your first investment, but don't be afraid to invest in a condo or home that is not currently rented. The conversion process is usually straightforward.

Finding the Right Rental Company

As you search for rental properties, simultaneously search for rental companies unless you plan to manage the property yourself. When interviewing rental companies, obtain a copy of their rental contract and ask plenty of questions. If possible, rent a property managed by the company you are considering to experience what guests will encounter. Don't make the mistake of focusing solely on management fees. Some of the better companies charge higher fees because they are confident in their ability to deliver results. Speak with other owners to gauge the performance of the management company. You can often find them by the pool or on social media pages, or ask the rental company to connect you with one of their owners. The key things to look for are cleanliness and staff interaction with guests. A bad guest experience can be exacerbated by rude staff.

Self-Management Considerations

If you plan to manage the rental yourself, ensure you have local assistance for general maintenance, housekeeping, lawn and pool care (homes), and pest control (if not provided by the Condominium Association). Your realtor likely has recommendations for reliable companies. Your housekeeping company will be your eyes and ears, so choose them carefully. Local Facebook pages can be helpful for finding business recommendations. Do your research and select the service providers who will offer the best service.

Final Thoughts

Investing in a vacation rental property can be a rewarding venture, both financially and personally. However, it's essential to approach it with careful planning and consideration. By understanding the costs involved, working with knowledgeable professionals, and choosing the right management strategy, you can increase your chances of success. Remember to do your research, ask questions, and stay informed about the local market. With the right approach, your vacation rental investment can become a valuable asset and a source of enjoyment for years to come. Happy investing!