If you're thinking of purchasing a vacation home as a short-term rental property, you probably have lots of questions. Here's a list of the most common questions that come up. Please let me know if I can answer any other questions you might have. Email: sold@darleneglaze.com
Cash-flowing a vacation home is a very subjective effort and ties closely with economic trends. Key factors that impact your ability to cash-flow a property and be profitable include:
The rule of thumb for years has been 10%-15%. That is, your gross rental revenues should be 10%-15% of the price of the property in order to break even for the year. However, when housing prices are high, that margin can shift if rental market rates do not keep up.
Therefore, it’s important that you ask your realtor for rental projections so you can do your own point-in-time evaluation of the market.
With that said, if your goal is to own a vacation home that you and your family can use any time you like, the cost of ownership can definitely be minimized by placing the property in a rental program.
The best way to get a feel for the cost of ownership is to look at your primary residence and the budget you have to maintain that property. The two largest components, whether you pay cash for the property or you have a mortgage, are going to be property taxes and homeowner’s insurance. Both of these components can be quickly estimated by reviewing historical data.
The next expense to evaluate is your HOA fee. A lot of HOA’s cover expenses like lawn care, pest control, trash pickup, sewer, security, and even cable. So take time to review all the HOA documents ahead of time to make sure you understand what is and what is not covered.
Utility costs will of course vary based on the size and efficiency of your property, and whether your property has other large amenities like a pool or hot tub. Most realtors are able to provide a “cost of ownership” summary that outlines the expected costs.
And just like your primary residence, you’ll have those unexpected costs that come up from time to time. So, make sure you create a reserve account to cover those items. Unlike your primary residence, you’ll have the extra cost of supplies and the cost of managing the property as a rental property.
Property management fees and commissions can be as high as 25%.
If you’re willing to dedicate a little time, you can opt to self-manage the property. At that point, you will only be paying the platform commissions and processing fees (3%-8%). Check out my blog site for a deeper dive into self-management.
Condominiums have their own set of restrictions and regulations and you’ll want to carefully peruse all the covenants, documents, and financials before you get too excited about a unit. When were the most recent inspections and improvements completed? Is there an assessment or capital contribution that owners are required to pay at closing or in the future? Are the association's financials sound? Your realtor will be able to provide all these documents and you should not overlook your right to this information.
Houses on the other hand typically have the same restrictions and regulations that you might find with your primary residence. If the house is in a community, be sure to review all the HOA documents, covenants, and financials. If you have hopes of adding a swimming pool or maybe solar panels, make sure the community allows for such improvements.
Lastly, some communities have restrictions on vacation rentals and sometimes property management options. For example, some will only allow you to select from their list of management companies and will not allow you to self-manage. Ask those questions to be sure your hosting model will align with theirs.
If you're considering a condo on Florida's Emerald Coast, ask me about my BEACHWALKER CONDOMINIUM GUIDE!
First and foremost, it’s important to recognize that not all communities allow short-term rentals. If you plan to rent your property when you’re not using it, check with your realtor for guidance on which communities are zoned for rental activities.
Secondly, rental activities are heavily regulated at the state, county, and sometimes the local level. At the very least, you will need to obtain a business license at both the state and county level, as well as a sales tax certificate. I recommend starting with the Tourism Department at the county level. I find they are very helpful and can typically provide all the information you’ll need for each governmental entity.
Lastly, if you are going to rent your property, know your audience. Will you be renting to single families or larger groups? A gated resort with a playground and swimming pool will be very appealing to families with children. Both community amenities and location will be critical factors for your rental business success.
Yes. My unique approach to vacation home management is focused on providing 5-Star Hospitality Service as well as an improved bottom line for property owners. The end goal is to help you, as a vacation home owner, transition to the role of being a host when the time is right for you.
You can check out my full range of services under my website, The Connected Host.
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