Do you have a second home? Or have you considered purchasing a second home? It is possible to generate a lot of revenue off your holiday home and we are here to show you how. Many people think it is too much work or that there is too much risk involved. That simply is not true.
There are a few things to keep in mind before purchasing an investment property which we present below.
Buy what you can afford. There is a temptation to buy outside of your means as you might assume you can pay the mortgage through renting the property. And while the rental income can cover a lot of the expenses it might not. Remember, there will be months where you might not rent it and there will be unexpected costs. There is no guarantee that you will rent the property every week that it is available. Every destination has a peak and low season and make sure you are familiar with your location’s seasonality.
Don’t forget upkeep costs. Are you looking at buying a beach home? Remember salt, sand and wind take a toll on a property. Looking for a mountain ski retreat? Again, the snow, ice and wind will take a toll so make sure to budget for this. If you are planning on using a property management company remember to budget for their fees and / or commission.
Make sure this is a good rental location. Your idea of an ideal vacation might be different from the masses. Make sure, if you want to rent your property, that it is in a vacation destination. This means on the beach rather than kind of close to the beach. You need to furnish the rental in a way that it can house as many people as possible. People want to rent a place that is within walking distance to restaurants, stores, beach, trailhead, etc.
Know the seasons and plan for this. Unless you are buying in Orlando, Florida (Home to Disney World) you will have high and low seasons. Make sure you know this. Beach front property in Dubai is in high demand except for the hot summer months. Those wonderful riads in Fes will not see a lot of visitors during the damp and cold winters there. Again see, our first comment about not buying out of your price range. You need to be able cover costs during the slow seasons.
Your home should be for recreation first and investment second. If you are looking for an investment, you might do better with a traditional investment property that you rent year round. However, if your main reason for purchasing a second home is for recreation, renting it out can offset some of the costs.
Research average rental rates in the area. So you have bought your second home and are willing to rent it out. Make sure you know what the market rate is. If the average rent is $100 / night and you are charging $200 / night, most likely your house is going to sit empty. The only exception to this is if you have a luxury property, amenities that exceed the standard in the area, etc.
Renting out your second home can be a rewarding experience but make sure you do your homework first.