Author: Hunter

In part 2 of the Vacation Rental Home Series, we have put together a few tips that will help you in your quest to purchase the perfect vacation rental home.

Location, Location, Location

This is real estate we’re talking about, so the location x 3 rule still applies.  You may be using your vacation rental for yourself at times, but if your primary intent for the home is as a vacation rental, consider looking at popular destination areas such as the beach or mountains within a 2-3 hour drive of an urban area with a large airport to make travel to your rental easier.  The home should also be in a pleasant location with activities such as beach walking, shopping, theater, restaurants, or horseback riding for the whole family to enjoy, and accessibility to these activities is key.  An oceanfront home may be outside your budget, but one a block away and still within an easy walk to the beach could be much more affordable and will open you up to a larger pool of potential renters.

The Four Seasons

Palm Springs, California might be a wonderful place for renters to enjoy golfing, sun, and 70-80 degree days in the winter, but temps in the 100s will keep many travelers away in the summer.  Similarly, a spot near great hiking trailheads in the summer and fall may have impassable roads in the winter snows.  The Oregon coast with its refreshing cooler summer days and cozy winters could be an ideal four-season vacation spot.

Affordability

You know that your vacation rental will produce some income for you, but do you have a good idea of how much you can count on and what your additional costs will be?  First, you need to make an educated guess about how many days a year you expect your home to be rented.  Research other vacation rentals using websites such as vrbo.com or homeaway.com, and talk to vacation rental property managers and ask about homes similar to one you might consider purchasing.  How available are they?  Are their calendars clear or full?  How much business do they seem to get?  When you get an estimate of how many weeks your house may be rented, cut that down by 1/3 to be safe, and do the math to come up with your potential rental income.  Then add up all of your expenses.  Compare that to your potential income, and if your expenses outpace your income, decide whether or not you can afford the difference.  Keep in mind, there may be stretches of time your vacation rental sits empty.

You may find a great deal on a home to use as a vacation rental, but the expenses go beyond the purchase price.  Put yourself in the shoes of a potential renter.  What would you want and expect out of a place you were renting?  Then, figure out which of those are ongoing costs.  Expect to pay for cable and high-speed wireless internet, landscape maintenance, and pool or hot tub maintenance if applicable.  Expect, too, to decorate for the masses.  New, clean, simple furniture that is pleasing to the majority of renters will make your guests feel at home.

Remember, too, to budget in typical home costs such as taxes and insurance, as well as maintenance and repairs.  A good rule of thumb is to expect that repairs should cost around 1.5% of the value of the house per year.  If you buy a $200,000 home, budget for $3000 a year in repairs.  You may not need all of it in a given year, but save it for larger repairs down the road.

Rentability

There are a number of factors that might increase how rentable your new vacation rental might be.  When you identify homes you are interested in, find out if they have been rentals in the past, and look at the rental history or talk to the rental agencies if any were used.  If it has not been used as a rental, talk to rental agencies about how much vacation homes in the specific areas and of that type tend to be rented.  It’s also important to look at vacation home rental websites such as homeaway.com, flipkey.com, or vrbo.com.  Look at several properties to learn which houses tend to have the busiest calendars.  Are they close to shopping?  Do they have views?  How many bedrooms do they have?

One of the first things to learn in your hunt is whether there any restrictions on short-term rentals in the city or the specific neighborhood you are considering.  Talk to your real estate agent and the city’s planning department to find out if there are any zoning restrictions that would prevent you from renting your home on a nightly or weekly basis.

Rent Before You Buy

As you will likely be using this as a vacation home for yourself as well as a rental for others, be sure that you and your family enjoy the area in which you’re considering buying.  Find a home or a hotel room to rent for at least a couple weeks.  This will give you time to experience the day-to-day life in the town, explore, and experience some of the activities available.  You can also spend time driving or walking through different parts of towns with an eye towards neighborhoods you would enjoy as well as any hidden annoyances like noise or traffic.  It will also give you time to look at the town and area through the eyes of someone looking for a vacation rental.  A real estate agent who knows the area can be very helpful as you are learning its various nuances.

Type of Home

The condo vs. single family home debate comes down to a few basic things.  First, how much do you want to manage the property?  Condo associations take care of all exterior maintenance while with a single family home, you or someone you hire will need to deal with any and all maintenance issues.  Consider amenities as well.  A single-family home may have more bedrooms and bathrooms, larger family spaces, and a yard for kids and pets, but many condos have extras such as a hot tub, pool, a tennis court, or fitness center.  Most condos have a home owners’ association with a monthly fee, and there may be restrictions related to renting the condos to third parties.  Finally, in your comparison with other rentals in the area, pay attention to whether condos or single-family homes rent better.  It may not be a good idea to buy a condo if most of the successful rentals are single-family homes, or vise versa.

Size of Home

Square feet in a home may not be as important as the number of bedrooms and bathrooms available.  Families and groups of friends traveling together value their own spaces and accessibility to a bathroom, and the more people they can sleep in one house, the more money they will save, and the more they can enjoy each other’s company.  Again, it is a good idea to see what other successful rentals in the area are like.  In general, your goal should be to cater to the typical renters who come to your area.

Tax Implications

Just as you do on your primary home, you will be paying property tax on your new home.  Be sure to talk to your real estate agent, county officials who determine property taxes, and/or an accountant to know exactly what you’ll be getting into.  You will also be paying income tax on any rental income you receive from the home as well, but you’ll also be able to deduct the expenses of owning the home, including taxes, homeowner dues, and management fees.

The thinking and legwork that needs to be done prior to making an offer on the vacation rental home of your dreams may take some time and energy, but it will pay you back in fewer surprises, rental income, and a vacation home you will enjoy using yourself!

Anyone with a small nest egg they’d like to grow is looking for wise investing strategies, and many are considering purchasing a second home to double as a vacation home and an income-producing vacation rental.  The stock market goes up and down, but people will always travel and increasingly will be looking for more affordable and creative ways to do it.  Many travelers are looking to stay closer to home and avoid hotels and restaurants, and vacation rental homes fit the bill.

In our Vacation Rental Home Series, we will be exploring the reasons a vacation rental may be a good investment for you, tips for looking for the right home, marketing tips, important amenities to offer, how to ensure repeat business, and more.

Three trends in Robin Amster’s article “Six Trends to Watch in 2014 & Beyond”  point to clear reasons why now is a good time to invest in a vacation rental property.  The first trend is the fact that millennials, 18-30 year olds, are more likely to travel in pursuit of favorite interests or activities and are more likely to travel with friends in organized groups.  This is clear in the number of people in this age group gathering friends together for a ski or beach vacation, or travel to a town for a specific event such as a music festival or a marathon.  As many in this demographic are becoming increasingly financially powerful, they are not to be ignored.  Paying attention to and marketing to this group of people will be a wise use of time and energy.

Another trend Amster points out is the growth of “creative tourism,” travel with the intent to be engaged in the community, connecting with and interacting with locals.  As vacation rental homes are often in residential areas as opposed to hotels off of the interstates, in tourist areas, or in urban downtowns, it’s very easy for travelers to live as a local, shopping at farmers’ markets and participating in community events.

The third trend to pay attention to is more multigenerational travel.  As baby boomers age and their extended families grow, they are motivated to do more family traveling, especially to celebrate big events such as retirements, anniversaries or birthdays.  As this trend and demand grows, the market must respond with affordable options with services, amenities, and interesting activities for all ages.  Hotels can be expensive, especially during holiday times, and the addition of restaurant meals for several people stretch budgets to the breaking point.  Some cruise lines and all-inclusive resorts can meet the activity demands but are well outside many travelers’ budgets.  People are starting to realize that it’s much cheaper to rent a house with a kitchen and cook than it is to take everyone out for each meal.

Not only is a house cheaper for multigenerational vacations, but it allows for a vacation lifestyle focused on the family.  As everyone is all together under one roof, interactions among all present are possible; people can relax and enjoy meals, movies, and games together.  Vacation rentals allow multigenerational family travelers a home-away-from-home where family members can do their own thing during the day and come together again in the afternoons and evenings.

Vacation rentals in towns such as Bandon, Oregon can meet all of these needs; there are many affordable options as well as activities to satisfy families with school-aged kids, seniors, and all ages in between.  Bandon also offers experiences millennials are looking for; located on one of the most beautiful beaches on the Oregon coast, it is ideal for a long beach weekend.  The Cape Blanco Music Festival  also draws country music fans of all ages from all over the country.  The small beach town is an ideal spot for visitors to engage in creative tourism.  The locals are friendly and welcoming, and there are activities and educational opportunities to participate in year-round.

If you’ve been considering purchasing a vacation rental home as an investment, a source of income, and as a place for you to get away, there are some very compelling reasons to go ahead and do it sooner rather than later.  The next post in the vacation rental home series will include some tips for buying the perfect vacation rental home, so stay tuned.

Eleven Threats to the Value of Your Home
(and how to mitigate them without going broke)

When you’re getting ready to sell your home, it may seem difficult to determine its value. When you look at your home, you see the place you raised your family or the place you spent your retirement years, or the first home you and your spouse purchased together. Potential buyers, however, see none of that. Instead, they see the condition of the carpets, the distance from the elementary school, or an open floor plan.

In order to get the highest price possible, it’s helpful to know which factors could be harmful to the value of your home, whether you plan to sell now or sometime in the future. Some factors, such as location, are outside of your control; however, others are easy to solve.

Although people in different communities value different factors when looking for a home, these 13 threats to your home’s value and their potential impacts can help you know where to focus your efforts in increasing it.

1. Location
Threat to value: Potentially high – 50% or more

We’ve all heard it; the three most important factors in determining a home’s value are location, location, location.

You most likely considered location when you bought your home, but the surroundings may have changed since then. An increase in crime, rezoning, or a newly city dump can negatively affect value.

It’s possible to change the house, remodel it or change its layout, but unless you plan to move the house, not much can be done about its location.

So, what can you do? First, consider what it is about the location that is bringing down its value. If it’s the view of the city dump, consider planting privacy hedges to block it. Be sure to emphasize the house’s strengths by perfecting its interior and exterior features. It’s possible that someone will overlook location if everything else about the house is just right.

2. Lack of Updates
Threat to value: Low to medium – typically at least 10%

When there is a large supply of homes on the market, buyers can be picky. If they see an outdated kitchen with old appliances and don’t want to undertake a remodel project, they will simply keep looking for a house where they don’t have
to.

Fortunately, a lack of updates is a threat that can easily be fixed. Spending money on new carpets, appliances, paint and countertops can you a return of at least 2-3 times what you spend when it’s time to sell.

3. Undesirable Floor Plan
Threat to value: Medium to high – up to 25%

Many buyers are looking for open floor plans. Again, with an oversupply of homes on the market, they will pass up homes with spaces that feel small and closed in.

Short of completely restructuring the interior of your home, there isn’t much you can do about the floor plan. However, you can maximize the spaces by keeping them sparsely furnished, free of clutter, and bright with as much natural light as possible.

4. Foreclosures
Threat to value: Varies

A number of foreclosures in your neighborhood will cause your home to lose value, but just how much is difficult to quantify. In areas with a high volume of
foreclosure properties, it can bring down the rest of the market, partially due to the fact that appraisers use those homes as comparables.

It is impossible for you to control the number of foreclosures in your area, but you do need to understand its impact. It may be that the only way to sell your home is to price it according to the market, as if it was in foreclosure. If at all possible, if you are surrounded by foreclosures and don’t need to sell your home right away, wait to sell until things have changed.

5. Rental Properties
Threat to value: Medium – up to 15%

The presence of renters is not so much a threat to your home’s value as is the fact that the rental homes are often not well maintained. Both absentee owners and the renters are often unmotivated to put time and money into maintaining the homes. Buyers are aware of this, and often avoid neighborhoods with a high percentage of rentals.

Although you can’t change the number of rentals in your neighborhood, you can maintain good relationships with owners and renters, and you can volunteer to help maintain the homes.

6. Major Systems and Structures
Threat to value: Medium to high – up to 20%

When buyers walk into a home and see a roof that needs replacing or learn that the plumbing material is faulty after an inspection, they immediately start thinking about how much it will cost for them to take on the repairs. Issues like this can stop a deal in its tracks, especially in high-end neighborhoods. A roof that needs replacing could reduce a home’s value by 15% , a heating and air conditioning system in need of repair could reduce it by 20%, electrical system problems by 8-10%.

Before listing your home, have an inspection done. It may seem redundant as buyers will want one done, however, fixing the major things brought up in an inspection before your home is on the market will mean a higher sale price for you.

7. No garage
Threat to value: Varies – usually about $5,000 per stall

Without question, a garage adds value to a home, however, the type of garage will depend on the type of house. A one-car garage attached to a small starter home is a great feature, but on a large high-end home, that will present a problem.

8. No fence
Threat to value: Low – 5 to 10%

Many buyers are looking for homes with fences to safely contain children or pets, and they see future expenses when they see a home without one. There is also value in outdoor living spaces such as patios or decks.

Having a fence built is a relatively low cost that will pay off when you sell your home, and many times neighbors are willing to split the cost of a fence when it benefits them as well. While you’re at it, building a deck or patio onto your home will increase the value of your home as well.

9. Stigma
Threat to value: Varies

At times, a house’s history can affect the perceived value of a home. If a death occurred in the home, if it was once a center of drug or criminal activity, or if other houses in the area were lost to a flood, buyers’ interest can be affected.

Topics in the news can also affect a home’s value. After news reports of health affects of living near power lines or cell phone towers, homes near them may be difficult to sell for a while.

It can be difficult but not impossible to change the stigma attached to a home or area. Making your house look comfortable, clean and bright can help potential buyers focus on the positive aspects instead of a nearby perceived problem or a checkered past.

10. Allergens
Threat to value: Low to medium – up to 15%

An increasing number of people are affected by allergens such as mold, pet dander and cigarette smoke. Buyers’ interest can be killed in an instant by the
sight of mold growing in the closet or by a sneezing attack as they walk in the door.

Some of these issues, such as a dog in your family, may not be fixable, but others are well within your control. If you have issues with mold, have those dealt with as well as possible before listing your home. Although it often lingers in furniture and linens, the smell of cigarette smoke can be partially eliminated by a new coat of paint and replacing the carpet.

11. Fit and Polish
Threat to value: Low – 5-10%

How’s your curb appeal? Does your lawn need mowing? Is the paint on the outside of your house chipping and peeling? Is your garage door rusting?

The outside of a home is the first thing potential buyers see when they step out of the car. Visual unattractiveness can negatively affect your home’s value and quickly turn buyers off. They begin to wonder what else they will find that will need work.

Inside your home, small things like a stain in the bathtub or a hole in the drywall can stand out to buyers. Although inexpensive repairs, they could make a big difference when it’s time to sell.

Fit and polish is relatively easy yet important for you to put effort into when selling your house. Fresh details like new paint on the walls or a new carpet can go a long ways.