Owning a vacation rental can be a good investment, but a lot can go wrong if you're not prepared. Here's what to know before you buy.
Owning a vacation home can be a great investment opportunity, but it is one that does have some risk associated with it. Before you ever purchase a vacation home, you should do your homework and plan accordingly. Here are 5 things that can go wrong when owning a vacation home.
1. Annual Returns Can Go Negative
Oftentimes vacation homeowners are faced with a negative annual return especially if they had a down year for bookings or if they had a major repair. Before you ever purchase a vacation home, you should look at all the monthly bills associated with the property and be comfortable enough with the total amount that you could pay on these bills even if the vacation home did not bring in any money.
Just in a few recent years, we have had a terrorist attack on American soil and the second worst financial disaster in the history of our country. These two events had a major impact on people traveling and the amount of disposable income they have to spend on vacations.
The second thing you must research before you buy a vacation home is to figure out the average nightly rate guests are willing to pay for a similar property and how many nights a year the property should be occupied. Once you have these two figures, you can easily find out how much income the property will bring in on an annual basis. When you compare the income to the monthly expenses, you should have a positive cash flow. If not, I would think twice about purchasing the property.
You can find most of the information you are looking for by asking your realtor, property managers who manage properties in the area, and by calling homeowners who list their properties on VRBO.com.
2. You May Not Be Able to Visit as Often as You’d Like
Life has a funny way of jumping in and keeping us from doing things we really want to do. I can’t count on my hand how many times homeowners have told me that before they purchased a property in Orlando, they visited 3 or 4 times a year. Then after they purchased their vacation home, they never seem to be able to break away and visit. You oftentimes find this as kids get older and get into sports or other activities that seem to eat up your weekends.
3. Repairs Can Come Up
You will need to put money back into your property every year to keep it up and maintained. The National Realtors Association estimates that you should budget for 1.5% of the cost of your home to be spent on repairs and general upkeep every year.
So if you purchase a $200,000 vacation home, you should budget to put $3,000 back into the property every year. Now, if you are renting your vacation home out to short term renters, you might need to budget a little more. Guests may not treat a vacation home as nicely as they would their own house.
4. HOA Dues Always Go Up
If you purchase a vacation home in a community that has an HOA, the dues will always go up. In all the years that I have been managing vacation homes, I have never seen an HOA reduce their monthly or quarterly dues.
5. Vacation Homes Do Not Always Increase in Value
Just as we talked about before, when we have a huge natural, manmade, or financial disaster, investors get scared and sell their investments. This is what happened in 2008 and 2009. Too many vacation homes flooded the market, and the price on the houses plummeted. Many people were not able to sell their vacation home for anywhere near the price that they purchased it, and this caused many houses to go into foreclosure and some houses to be sold as short sales. The longer you hold onto a vacation home, the better chance you have of making money on the property, but buying a vacation home is not a surefire money maker.
Owning a vacation home is a good investment if you do your homework and research. Many people rush to buy a vacation home for the simple pleasure of just saying they own one. Take your time; buying any good investment is a marathon, not a sprint. Don’t be afraid to walk away from the property if you are not totally comfortable.
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And running out of privacy, too
Companies looking to trim the fat are looking to people’s workspaces, according to a new report, leading to a decline in in personal space and privacy at work, even among some corporate employees used to spacious offices.
“Every client we talk to, they’re using less space per person,” Kenneth McCarthy, an economist at the commercial real estate broker Cushman & Wakefield, told the New York Times.
The average space per North American worker in 2012 was 176 square feet, down from 225 in 2010, according to commercial real estate association CoreNetGlobal, and it’s expected to drop to 151 square feet in 2017.
Zillow executives talk about where home values are rising and what you should look for in a house.
Keep pets, friends, and bad credit from ruining your shot at a nice rental
If you are a renter, you have many obstacles ahead of you. Landlords are full of horror stories, and you are just another potential horror story. You want and need to be the best renter the new landlord has ever seen.
No landlord really wants you, but they need you. They need you to help them pay their rental mortgage; they need you to help them pay their personal mortgage, they need you to help them retire early. But they do not need you to come around and damage the premise or cause them a lot of extra work. Here is how to be the best renter you can possibly be.
Prepare for the Apartment Viewing Process
When you set up a showing for a rental property, it is really an interview. You are interviewing the landlord or property management company, and they are interviewing you. Make a critical mistake in this process, and you will have to move on to the next property. You do not have to be dressed for church, but do not come looking like you are homeless.
Get A Solid Credit Score
Anyone can have a decent credit score at 18 years old. Apply for a secured pre-paid Visa card, use it for a small charge once a month, and pay the bill when it comes due. Just like that, you will have a 700+ credit score. If you already have bad credit, you are starting behind the 8-ball and may have more difficulties. Clean up your credit report as soon as possible to increase your credit score.
Knowing approximately what your credit score is will help immensely, in case there are credit score requirements for the rental. There is no sense in applying for a place you will not get. Bring in your proof of a credit score to help, but know that any decent landlord will also run your application through a credit check process and verify that your version closely matches theirs.
Come Prepared to Rent
You should be ready to rent any place you are looking at; otherwise, why waste your time or the landlord’s? Bring along proof of employment and income, along with your W2, tax forms, or a pay stub. Bring a pen to fill out an application and a checkbook to write out a check for the application fees. If you like the rental, you should also put down a holding fee to hold the rental. If you do not like the place or the landlord, keep the information in your pocket for the next place.
Control Your Viewing Group
Bring everyone along who will be renting — and no one else. A landlord will assume that your friend who arrives with you and is “living somewhere else” will be moving in as soon as you sign a lease. If your fiance who has just gotten out of prison stays in the car, I will also assume he looks so rough no one will rent to him, and I will also assume he will be moving in. Do not be offended if the landlord wants to keep criminals out of their multifamily rental.
If you have kids, do not let them run wild in the rental. It is not your place yet. If you are viewing an occupied unit, remember that it is someone else’s house. The current tenants do not even want you there, but they know the landlord needs to show it. If your kid steals a toy from the current renter and you have to come back from your car to return it, please do not be offended when you are politely declined for the rental.
Clean Up Your Pet Situation
Get rid of your “lab mix” dog that looks and acts like a purebred pit bull. Landlords do not like pit bulls, insurance companies do not like pit bulls, and many cities do not like pit bulls. If you have a 200 lb. bull mastiff, expect to be declined as a renter in any places that do not also allow horses. If you have six cats, get rid of at least four of them. Do not even apply if you have an intact male cat.
If you have a fish tank, keep it under 55 gallons. I have had renters with 200+ gallon saltwater fish tanks, and while they are impressive, they are way too big. Do not think for a minute that large or poisonous snakes are a great pet in an apartment, even though they are quiet. If your dog barks, get a bark collar for it.
If you have more than two pets, in any combination of dogs and cats, you are going to have a problem, especially if you can barely afford the rent.
Learn Move-In Etiquette
Once you have been approved, plan on moving in during the day. You can start as early as 7 a.m. during the week — or even 8 a.m. on the weekends — but do not start moving in after 8 p.m. Wait until the next day. Do not block the other tenants’ cars with all of your mover’s cars. If you have to temporarily block driveways and garages, be prepared to quickly move out of the way in short notice. Other tenants need to go about their day and do not want to be inconvenienced by you.
Watch for the walls and ceilings when you move. Do not scrape the walls and break ceiling light fixtures. If you drop trash in the hallways or common areas, pick it up. If you see a neighbor, introduce yourself if they do not do so first. Your neighbor is your ally. They are the ones who will tolerate your noise — or call the cops on you. It’s your choice: be a neighborly neighbor or be the “strange person across the hall.” A simple handshake is all it takes.
Requirements of a Great Renter
Pay Rent. It is impossible to be a great renter if you do not pay rent. You could be a personal friend of Gandhi or a guest of the Pope on a regular basis, but if you do not pay rent, you are a terrible renter by definition. Pay your rent on time; it is due on midnight the evening BEFORE the first of the month. Not on the first, not on the fifth. Set up an auto-pay system so you do not forget; it will save your renter reputation. If you need to pay rent in two installments, pay half in advance, and the rest when it is due.
Do Not Force Other Tenants to Leave. If you have weirdo habits that creep other tenants out, it is a bad deal. Do not deal drugs in the apartment area, or even look like you might be a drug dealer. If you want to be a drug dealer, go do it at work, not at home. If you have a habit of hanging laundry on the deck or using a sheet for a curtain, think twice about it. You do not want to bring down the appearance of the complex because you are too cheap to live like a normal human being.
Do Not Bring in Pests. Stay away from the free furniture on the curbs. It is there for a reason; no one wants it. It is likely to be full of bedbugs. Stay away from bringing home boxes from stores and restaurants that are full of cockroaches. If you bring in cockroaches or bed bugs, do not be surprised if you are eventually asked to leave. It is easier to rid an apartment of pests when it is empty. Pests are non-discriminatory in terms of income level, but low income habits seem to attract them.
Do Not Invite Your Criminal Friends Over. Many criminals who have been to jail or prison have a different mentality when it comes to resolving issues. It typically becomes a fight waiting to happen. Combine criminals, alcohol, and a card game, and it is only a matter of time before someone gets offended and a fight breaks out. When someone gets into a fight and they are hit with a 1.5L brandy bottle, they can fall against the stairway railing and lose half of their ear. I have seen it happen. If you have criminal friends, go play at their house, not yours.
Do Not Just Hang Around. Do not loiter around the outside of the building or allow your friends to do so. When you come home or your friends come over, go into your apartment. Hanging around looks bad — it looks like you are looking for trouble to get into. And especially do not hang around the building or parking lot around after dark. Hanging around and drinking is even worse; do not drink outside your apartment. If you are grilling alone, a beer to pass the time might be OK. Never drink outside when you have friends over.
Disclose Your Extra Guests. Do not expect that because you have paid the rent, you can have extra people living there. There is a reason why tenants get screened; one reason is to make sure you will likely pay the rent. The other reason is to screen out potential troublemakers. If you want a guest, get them approved by the landlord. Maybe there will be slight increase in rent, maybe not. And extra guests also include extra pets.
Do Not Be Crazy. If you think it is a great idea to come home drunk at 2 a.m. and start a fight with your roommates, think again. The other neighbors do not want to hear you wrestling around like a bunch of wild bears upstairs. If you then think you are invincible and want to go out and find another party but decide to punch the ceiling light on your way out, it will not wind up good. The light fixture is cheap to replace, but I will be charging a much greater amount against your damage deposit for my time and trouble.
Be Quiet After 9 p.m. Most tenants work a typical day job. They expect it to be quiet when they go to bed or start to get ready for bed. If you like parties, loud TVs, shoot-em-up video games, or even loud card games, you need to think twice about whether a multifamily rental is for you. You share walls, ceilings and floors. Your music and sound effects become their noise. If you already met the neighbors, they might come over and help you realize you are making too much noise. If not, they may just call the cops.
Do Not Attract Police Calls. Call the cops as often as you need to, but never get them called on you. One call and you could be evicted. If you committed a cardinal sin, like domestic abuse or drugs, expect to be shown the door. If your live in roommate gets arrested for having a vehicle chop-shop in the garage, do not expect you will have until your lease ends to move out; you will be lucky to get until the weekend to move. When bad behaviors are noticed and one gets kicked out, everyone gets kicked out.
After the Move-In
Remember that the hurdle you had to overcome to move in, your neighbors also have experienced. The reason why your rental is nice is directly related to that tenant screening hurdle. You should want to keep it nice and get a great landlord reference.
Your home is your castle, but it is not going to be yours forever. Give proper notice to move out. Keep it clean and mostly presentable. Clean up after your pets and control your guests. Enjoy the time you are there.
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Warning: quiz may cause wanderlust.
New research finds that a Starbucks opening in the neighborhood helps local property values.
When searching for a new home, buyers usually consider the usual suspects: square footage, number of bedrooms, amount of sunlight.
Vanessa Pappas had another factor in mind as well: coffee shop proximity.
When Pappas and partner C.C. Hirsch recently closed on a three-bedroom property in Windsor Terrace, Brooklyn, it didn’t hurt that her favorite macchiato place was only a half-block away.
“Coffee is important,” says Pappas, 36, global head of audience development for YouTube. “It’s our daily ritual, and we always go to see our friends who work there. It makes us feel like part of the neighborhood.”
It turns out that easy access to quality java has broader implications. Call it the Starbucks Effect: Proximity to a local coffee shop has a very real, and positive, effect on home values, new data shows.
“We looked for certain markers for where homes appreciated faster than others,” says Stan Humphries, chief economist at real estate marketplace Zillow and co-author (with chief executive Spencer Rascoff) of the book The New Rules of Real Estate.
“Coffee houses emerged early on as a big predictor of future home value. Within a quarter mile, close enough to smell the coffee brewing, that ring appreciates faster than rings further out,” Humphries says.
How much faster? Over 17 years tabulated by Zillow, leading up to 2014, homes adjacent to the local Starbucks almost doubled in value, up by 96%. Those further out appreciated by 65% over the same period.
And apparently not all coffee shops are created equal. Zillow researchers compared homes near Starbucks locations to those near Dunkin Donuts.
Dunkin Donuts-adjacent properties also outperformed the wider market, rising 80% over 17 years, but they lagged those in the shadow of Starbucks.
Of course, there is a chicken-or-egg question here: Are coffee shops causing a boost in home values, or are the popular chains merely locating in promising neighborhoods that are already on the upswing?
Humphries’ discovery: Within the first few years of opening, Starbucks locations are actively helping local home values. After that, the outperformance of the broader market tends to diminish.
Whole Foods Effect
The coffee shop is hardly the only symbol of neighborhood gentrification. Researchers have found other amenities can have an even more powerful effect on home values.
Nearby specialty grocers, for instance, can lead to a 17.5% home-price premium, according to Portland, Oregon-based real estate consultancy Johnson Economics. That compares to a more modest 4.5% for coffee shops.
In that sense the Starbucks Effect might be more accurately be termed the Whole Foods Effect, according to the firm’s principal, Jerry Johnson, referring to the natural food supermarket chain.
Also significantly affecting nearby home prices, according to the Johnson Economics study: cinemas, wine shops, and garden stores.
Given Starbucks’ massive resources, it is perhaps not surprising that the Seattle-based chain is adept at picking out promising spots. After all, the company employs entire teams of professionals devoted to pinpointing optimal locations.
“Where we choose to locate our stores is as important as how we design them,” says Michael Malanga, Starbucks’ senior vice president of store development.
For potential homebuyers, it’s like heading into an exam with the answer key. Assuming that significant market research has gone into every store opening, buyers can piggyback on those positive conclusions.
“There are substantial resources spent by Starbucks headquarters to figure this stuff out and find where the best locations are going to be,” says Zillow’s Humphries. “So for homebuyers, you can essentially draft off the work that Starbucks has already done for you.”
As for YouTube’s Pappas, she’s not a fan of Starbucks. She prefers her local Brooklyn spot—Krupa Grocery. But she isn’t surprised that coffee shops turn out to be a reliable predictor of home-price appreciation.
“Especially in New York City, you want to be able to walk to everything,” says Pappas. “Having a coffee shop within eyesight is a big plus.”
The list considered income, health, labor, and environmental indicators to rank Utah at the top
The U.S. elderly population is growing rapidly. The number of Americans 65 and older grew from 35 million in 2000 to 41.4 million in 2011 and to an estimated 44.7 million in 2013. This trend is expected to continue as members of the baby boomer generation reach retirement age.
While it can be difficult to grow old in some U.S. states, life for seniors is often far worse in many other countries. Still, the United States will face increasingly large challenges. In the coming years, state officials, families, and individuals will need to pay more attention to the needs of the elderly — to improve medical care, access to services, infrastructure, or other amenities increasingly necessary late in life.
HelpAge International evaluates each year the social and economic well-being of elderly country residents in its Global AgeWatch Index. Last year, the United States was among the better places to grow old in the world, at eighth place. However, domestically, each state offers a very different quality of life for its older residents. Based on an independent analysis by 24/7 Wall St., which incorporated a range of income, health, labor, and environmental indicators, Utah is the best state in which to grow old, while Mississippi is the worst.
To be considered among the best states to grow old, senior citizens in the states had to have relatively strong income security, as measured by several indicators. While the national median income among families with a head of household 65 and older was $37,847 in 2013, comparable incomes in eight of the best states to grow old, for example, exceeded $40,000 in 2013. A typical elderly household in Hawaii led the nation in 2013 with a median income of $55,650.
Retirees often have fixed income, as they begin to tap into their savings and collect social security. Kate Bunting, CEO of AgeWatch USA, explained that, “It is really important for older people to have reliable access to a guaranteed income.” More than 90% of Americans 65 and older in the vast majority of all states received social security income in 2013. The average monthly social security benefit of $1,294, however, was likely not enough for many seniors.
As a result, many older Americans relied on non-social security income, such as withdrawals from 401Ks and savings as a supplement. In 2013, 47.9% of Americans 65 and older had such supplemental retirement incomes. More than 50% of older residents in four of the best states to grow old had such incomes. At stake, according to Bunting, is the elderly’s “ability to eat nutritious foods, which impacts their health, and their ability to access other critical services.”
With lower, and often fixed, incomes, elderly Americans are vulnerable financially. In addition, age often brings a host of health problems, causing greater reliance on medical and accessibility services. To determine how the states fare when it comes to health care, we examined health services and outcomes. In the best states, life expectancy was relatively high. In eight of the 10 states, it was at least 80 years.
A good education, which can lead to employment opportunities and higher incomes, is also an indication of well-being. While less than one-quarter of Americans 65 and older had at least a bachelor’s degree as of 2013, at least 28% of seniors in seven of the best states had attained such a level of education. More than 34% of Colorado’s elderly population were college-educated as of 2013, the highest rate nationwide.
As older people tend to be more vulnerable to criminals, the best states to grow old also needed to be relatively safe. In all of the 10 states, the violent crime in 2013 was less than 300 incidents per 100,000 people, all among the lower rates reviewed.
In addition, policies often shape the quality of life for a state’s elderly population. Smart Growth America rated state-level infrastructure policies and their effectiveness in serving all residents, including the elderly. While many states had not passed any such policies, a majority of the best states to grow old had done so in recent years. Bunting suggested that as the aging population grows, it will become increasingly “important that you have the right kinds of policies in place that help support a quality old age.” Adapting to these demographic patterns through age-friendly policy, Bunting continued, is “important and worthwhile to do, no matter what age you are.”
These are the best states to grow old.
> Median household income (65+): $40,020 (15th highest)
> Pct. with a disability (65+): 34.1% (10th lowest)
> Pct. with a bachelor’s degree or higher (65+): 29.2% (7th highest)
> Violent crime rate: 404.0 per 100,000 residents (16th highest)
Based on income, health, labor, and environmental indicators, Massachusetts is the 10th best state to grow old. In particular, Massachusetts’ elderly population has the benefit of an exceptionally strong health care system. In a state where the vast majority of residents were insured in 2013, less than 0.5% of elderly residents aged 65 and over were not, among the lowest rate in the country. Older Massachusetts residents are also relatively well educated. Nearly 30% had at least a bachelor’s degree as of 2013, one of the higher rates. Also, as in a majority of the best states to grow old, Massachusetts’ policies are rated favorably for considering the needs of seniors and other groups that require more services. In particular, state officials introduced a directive that would require all public transportation land use plans to include features necessary to offer greater access for people of all capabilities.
> Median household income (65+): $42,287 (12th highest)
> Pct. with a disability (65+): 37.4% (17th highest)
> Pct. with a bachelor’s degree or higher (65+): 29.8% (5th highest)
> Violent crime rate: 277.9 per 100,000 residents (21st lowest)
Less than 48% of America’s population 65 and older had some form of retirement income, excluding social security benefits. In Washington, nearly 53% of elderly residents had retirement incomes to supplement their social security benefits, one of the highest proportions among all states. In addition to relatively strong income security, seniors living in Washington rated their accessibility to services an 8.9 out of 10, better than how seniors rated their access in all other states. Older Washington residents were also well-educated compared to their peers in other states. Nearly 30% of people 65 and older in Washington had at least a bachelor’s degree as of 2013, one of the highest rates in the country.
> Median household income (65+): $44,240 (7th highest)
> Pct. with a disability (65+): 32.1% (2nd lowest)
> Pct. with a bachelor’s degree or higher (65+): 28.3% (11th highest)
> Violent crime rate: 254.5 per 100,000 residents (15th lowest)
Connecticut residents were expected to live nearly 81 years in 2011, the third highest life expectancy in the country. Just 32.1% of older Connecticut residents had a disability as of 2013, nearly the lowest rate. Physical health among older residents likely contributed to longer lives. According to a recent OECD study, Connecticut residents rated their general health a 7.8 out of 10. Also, the median household income among Connecticut elderly residents was more than $44,000, well above the national median of $37,847 in that age group. While the relationship between income and health is hotly debated by experts, high incomes likely allow older residents greater access to services.
For the rest of the list, please go to 24/7WallStreet.com.