Buying a Vacation Rental: 6 Things You Need To Know
The Myrtle Beach area is one of the top vacation destinations in the nation. Vacation rental buying can be a great investment opportunity, even for first-time investors. However, as with any investment, there are expenses and details to consider that impact your bottom line. Here are the key factors to consider before you sign on the dotted line for your first vacation rental property.
1. Long-Term Goals – What are your long-term investment goals? Investing in any kind of real estate for rental purposes (traditional rental or vacation rental) is a long-term commitment of several years, at minimum. If your investment goals aren’t in line with the long haul of rental real estate, you should strongly consider if this is the best opportunity for your goals.
2. Getting and Keeping Up with the Mortgage – If you’ll be financing your vacation rental property, be prepared with a down-payment of 20-30%. Mortgage lenders typically view a vacation rental purchase as they would a second home or personal vacation home. This means many of the programs and rates you’d find in first-time homebuyer programs would be unavailable to you as an investor. Also, keep in mind the length of the local tourism season and have a plan to make sure the mortgage payments will be covered during the off-season.
3. Insurance Matters – Before you finalize the purchase of your vacation rental property, make sure you have several estimates for insuring the property. Because the property is being used to generate income and will not be your main residence, the insurance premiums are typically higher on vacation rentals than on your own home. With many different people accessing the property, this increases the risk profile for the insurance company. Many insurance companies require a commercial property policy or business liability policy.
4. Maintenance and Turnover – Who will perform maintenance and repairs? Who will be cleaning, inspecting and prepping the property in between vacation renters? Plan ahead for the expense of these services. Also plan ahead for the expense of any booking services you will use to book and collect payment from guests. Forgetting even one small expense can drastically change how much you will make from your investment over time.
5. Multiple Taxes – Taxes for an investment property like a vacation rental are a bit more complex and multi-layered than taxes on your primary home. First, you will need to plan for traditional property taxes on the home. Second, you’ll be responsible for ensuring required sales taxes, lodging taxes and other local taxes are collected from each renter and then reported and paid to the appropriate parties. Even if you have a service handling this for you, it’s your responsibility to ensure they are collecting all required taxes and fees accurately. And finally, keep in mind that you’ll have to report the income from your vacation rental property on your federal income taxes.
6. Your Location – Where is your primary residence? While it can be workable for investors to live several hours or even several states away, distance from your vacation rental property means less direct supervision of your investment. The closer you live and more often you can personally check on your investment property, the greater peace of mind you’ll have and the faster you can correct a potential problem that your maintenance and turnover services might miss.
Buying a vacation rental property in Myrtle Beach can earn an investor quite a bit during tourist season and over time. If you’re a first-time vacation rental investor, it is essential to your bottom line to make sure you know how each of these factors will impact your investment. Spending a little time before you sign on the dotted line can save you big bucks over the lifetime of your investment. Your Century 21 Broadhurst agent can help you find the perfect vacation rental investment.