My earlier post about things I have learned from owning vacation rentals was totally for fun. However, owning vacation rentals is very much a business with financial consequences. This post will focus more on the business side of vacation rentals.
If you are considering buying a vacation rental, here is what I think you should know.
- Know what your breakeven will be before you buy or build. Run the numbers. Call for estimates on utilities. See what similar properties rent for and how often they rent. Once you have computed your best case, breakeven, and worst case do some hard thinking. For me, worst case is no one rents. Can you afford to make mortgage payments, pay utilities, insurance, taxes, etc., even if no one rents for months at a time? If so, you are probably prepared to be a vacation rental owner.
- Be familiar with IRS rules on vacation rental, such as Publication 415. There are limits on how many days you can stay at the property based on how many nights it has being rented, if you are going to consider it a rental property.
- If you are going to own a property out of state, research what might be different from what you know. Such as, is there a state, county or city tax and if so, are you required to pay?
- Stay in the property to see what is missing, what it sounds like, what you would want to be different if you were staying there. You will be welcoming guests, with or without you actually being there to greet them. Read my earlier post on welcoming overnight guests.
- Read How to Rent Vacation Properties by Owner, written by Christine Hrib Karponski. She has some great thoughts, a good list for stocking the cabin, and practical insights, even if you plan to use a management company.
- Decide who will manage the property…a manager or you. I had originally thought I would like to manage mine myself, but the reality is I do not have enough time to manage and give it all the attention it deserves. My cabins are in a very competitive market, so I like the fact that my managers do marketing, are onsite, know the vendors, and have the experience handling most situations. If my rentals were where I live, I would probably still prefer a management company because of my lack of free time.
- If you decide on a manager, choosing which manager is an equally important decision. Before you decide, think about what is important to you; then find a manager who also feels those items are important. I wanted my first cabin to be rented everyday of the year, if possible. I looked for the management company that really rented, had a great online presence, and had a management fee with which I could live. Other things important to me: superior customer service, an impeccable cleaning team, great upkeep of my property and feeling like the company is helping me to keep my property fresh and well-maintained.
- Be prepared to replace items as they become worn. I recently replaced bedspreads and pillows in my three year old cabin. Towels and sheets had already been replaced. Dishes, glasses and flatware had walked off or broken so they have been augmented. Nylon cooking utensils are replaced often. I have had to replace one bar stool and one dining table chair. I purchased extra of everything when I outfitted my cabin; so the management company has access to replacements of stools, chairs, kitchenwares, pillows, etc.
- As part of your research, talk to others who rent cabins in the area to get their feedback and insights, and stay in some rental cabins in the area. Learn from the mistakes and successes of others.
- Research other cabins in the area through their websites, Facebook pages or their management company’s website. What size cabin rents the most; when is the off season; what management company has the most rentals; what are your competitors’ rental fees; what additional fees are charged to customers? Your management company can provide helpful guidance while building and supplying your rental, so decide early to incorporate their experience.
Owning vacation rentals has been eye-opening, aggravating, fun, worrying, and sometimes profitable. It comes with some pretty big financial risks that I tried to mitigate by doing my research before I jumped in. If you decide to join me, I wish you all the luck in the (vacation) world!
Note: If you choose to use a management company, they will likely have a list of requirements for your cabin. In this case, you will want to identify them early on in the process before you stock your cabin. For example, my management company requires that I have enough dishes and flatware for double the number of people that my cabin sleeps, and that they all match. So, buying discontinued or garage sale items won’t generally work. It is better to know this before you make your purchases.