How to Choose an Investment Property

Dreaming of a second home to visit for vacations? Or maybe you simply a home that you can collect money on each month to help you reach income and investment goals?  Then you are probably intrigued by the idea of an investment property. With the rising popularity of home rental platforms like Airbnb, Homeaway and VRBO, having a profitable rental property has become significantly easier.  However, it has also greatly increased the competition in the short term rental market.

Here is what to consider when buying a new property for the purpose of renting:

  • Decide what kind of rental it will be.  Long term rentals may seem like less hassle, but they also come with a lower monthly margin and more wear on the house.  Short term rentals allow for premium pricing during holidays, weekends and peak seasons.  Plus, it is more frequently cleaned and experiences less wear throughout the year.
  • Pick the right destination.   Keeping a short term rental full is all about finding the right spot.  Whether the area has lots to do, or has a very specific attraction that people love to visit, keep in mind what kind of tourist traffic a home will have at different times of the year.  No matter how great of a deal a home is, if it’s not a desirable location it will be a lot harder to market. You can get an idea of the market and your competition by searching on Airbnb.  Additionally, if you pick a vacation spot that you love too, you have the opportunity to use it during the year for yourself.
  • Pick the right neighborhoodOkay, so you picked your city or region.  Now it times to consider what specific region based on attractions, restaurants, parking, public transportation, grocery stores and other surroundings a tenant might find invaluable during their stay.  While a more central location close to city attractions may be more expensive, it will most likely also yield a higher nightly rate. It’s all about finding a balance between possible rates, budget and location and then determining what fits your needs best.
  • What amenities can you offer.  When people vacation, they like to splurge and relax.  Keep this in mind when checking out homes. What amenities could you offer that will give you a competitive edge in the rental market.  This can be anything from a cozy design to a pool, professional kitchen, great views and more!
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  • What fits your budget.  It is said that there is a place and budget for every buyer.  Try to determine what you are comfortable spending and what kind of financing you qualify for before you start looking at homes.   Talk to your bank, realtor and tax accountant to see if you could qualify this purchase as a second home too. Stay practical while you’re searching and don’t get carried away dreaming of the potential of luxury homes (if you can’t afford it).  On the other hand, if you find a fixer upper be wary since these tend to take more time and money than expected. Find what fits your budget, skills and comfort level. Remember, just like your home budget, there are tenants with a wide range of budgets that will fit accordingly. Dream big, but stay practical by setting a budget from the start!
  • The cost of upkeep.  Determine what fees will be eating way from your monthly income each month. Keep these and make a list so that you know what your bottom line is.  These may include fees for HOAs, maintenance that needs to be done, upgrades you want to make, the cost of furnishing the home and any management you might hire for cleaning, bookings and more.
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  • How often will you be able to vacation there. Now that you found the perfect spot.  Keep in mind the cost and difficulty it might take for you to get to your vacation home on a regular basis (i.e. time and money to get there).  Make sure you can actually enjoy it on occasion!
  • What management companies are available to maximize your rental potential.  Short term rentals can come with a lot of headache for logistics of customer care, cleaning, and check-in/check-out, especially if you don’t live in the region.  Hiring an experienced management team can make this aspect of owning a vacation home a breeze.  They can take care of everything from customer care to cleaning, maintenance and any other needs that might come up.  Look into your area for companies available. (Skye Management is a great option in the San Diego area.)
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Buying a second home can be a lot of fun as long as you keep all these things in mind.  If you decide it is right for you, you will discover the joys of being a host and the limitless opportunities for providing a quality vacation home.

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