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How To Approach The Vacation Rental Strategy

Published on Friday - June 13, 2014

With the weather heating up across the country, the heart of summer is right around the corner. Subsequently, summer will ultimately lead to unlimited opportunities for individuals with vacation rentals. As an investor, you are programed to always keep your eyes open for new opportunities. If you are on vacation, you just might bump into a rental property that interests you. There are definitive pros and cons when owning any type of beach rental or seasonal rental property. For every investor that tells you to stay away from them, there will be an equal number that will tell you about the massive cash flow they bring in from the summer months alone. Like anything else you do in real estate, you need to know exactly what you are getting into before you start looking into vacation rentals.

Not only does the property itself need to be in a desirable location, the area must be in demand as well. Since the bulk of your income will be derived from seasonal “rentability,” your property has to be in a location that is close enough to the beach or the center of town to hold appeal. These properties are at a premium and thus will be more expensive. That will benefit you when are looking to attract renters, but it will also be much more costly to buy.

In most cases, you will not live in these specific towns and will need to rely heavily on your team of local realtors, contractors and property managers. Once you have located a property that you are interested in, your next call should be to these local contacts. These people will be your eyes and ears on the property, as you most likely will not be able to frequent the property with regularity. Take your time and talk to as many people as possible until you find ones that are a good fit and share the same vision as you.

While rental amounts may be high, other expenses will be high as well. If you are located near a beach, you will most likely be in a “flood zone.” Based on your proximity to the water, flood insurance can be costly and difficult to obtain. You will also need to factor in the above mentioned property managers and most likely furnish the property. While you can collect higher rents in peak season, you may be looking at lower than average rents during the off season. Not only do you need to evaluate the property, you need to take a good look at past rental amounts for the subject property.

Because of the cost of the property and the increased expenses, you shouldn’t expect to make your money back right away. In most cases, these properties should be viewed as long term holds in your portfolio and may take many years to break even. If you are OK with this philosophy, and not being able to drive by the property when you like, vacation rentals can be very profitable down the road. There is also nothing wrong with liking the area, but focusing on properties a little closer to where you live. Like most real estate investments, it comes down to personal preference and what your long term goals are.

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