Ways to Get Into the Industry
There are a variety of ways people get into vacation rental ownership
Buy and rent out your retirement dream home—Do you know where you want to retire? Buying a home and renting it to travelers years before you are ready to retire is a great way to have part, or your entire home, paid for. It’s a wonderful way to plant roots in a community as you will be returning again and again. You are an owner, not an outsider, and will have invested in your home and community. Compared with those that purchase at retirement, you will likely have paid far less for your home, and off-set a great deal of your purchase price by the income made from renting it as a VR home.
Buy and rent out your vacation home—Do you have a spot in the world that calls out to you in the middle of the night and during boring meetings? Do you long to spend much of your free time in one locale? If so, a vacation home can be a rewarding endeavor. I had been to over 30 countries before I visited Fiji. All of them wonderful, most worthy of a return. And while I liked Fiji, it wasn’t until arriving at a resort at the very north of the main island that I found paradise. It was take-your-breath-away beautiful. The resort owner took some of the guests to the hill overlooking his dream—a residential area. I fell utterly and completely in love. The stars aligned, a choir burst forth into song--I had to have a spot there. And while it takes a mind-numbing 24 hours to get to paradise, it’s worth every cramped second of travel misery. It’s living a dream.
Your dream might be a bit closer to home. While it’s possible to successfully manage a business from a world away, closer is better from a management standpoint. This is why Sandra Cloer, owner of Cranmore Cottages in Hendersonville, NC, started her business in her hometown, which is a tourist destination for other people. She is just a few minutes away from her guests and able to address concerns immediately. If you decide to retire early in Ecuador or another beautiful locale, you can purchase another home, maybe even next door, and rent it out to travelers.
Rent out an inherited home—The gift of a home when a loved one passes away is a treasure. Sometimes, it’s hard to know what to do with it. If it’s in a touristy area and in good condition, it could make a great vacation rental. And if the home is owned outright, making a profit is so much easier. Sometimes, multiple people inherit one home, so working out the details could get difficult. This is a case where a property management company could be a very good idea.
Convert a long-term rental to a VR—If you have a long-term rental that’s right for the vacation rental market, this is a smart option, but generally requires more work than a set-it-and-forget-it long-term rental. As a landlord, you have a handyman in place or you do repairs yourself. You know the property well and generally don’t have an emotional attachment to it. If your rental is in your home town, so much the better. A rule of thumb is that vacation rentals bring per week what a long-term rental will bring in per month. For example, if your condo rents for $1,000 a month as a long-term rental, it will likely bring in $1,000 per week. Look at your tourist season—-is it a place that will attract people year round, or does your area have a short season? Work that into your number crunching. The vast majority of VR’s do not have a 100% occupancy rate, so be careful to know what you can expect.
Making the switch from long-term landlord to vacation rental owner is as much mental as it is physical. You’ll need to furnish your home with thought and set up utilities, but instead of getting the occasional maintenance call, you’ll be interacting with people planning a vacation. It’s much more hands on, but more fun, if that suits your personality. If converting your rental to a vacation rental ends up not being a good move, you can switch it back to a long-term rental easily, this time furnished, and command a higher price than an unfurnished rental.
Forced move requires renting out a home—If work or family obligations are calling you elsewhere, you may decide that keeping your home as a rental is a smart investment. Or, in a soft real estate market, it might be decided for you. Make sure you have the best mortgage in place before making the move, and remove all personal and sentimental items before renting it out.
Business opportunity—Some people get into the vacation rental business for the dollars and cents of it. Just as someone would open a coffee shop or a clothing store, they see VR ownership and management as a way to earn income. It’s a worthwhile endeavor. Crunch the numbers.
Also, many property management companies earn commissions of 30%-50%, so once you have success in marketing and managing your own property, managing VR’s for other owners is a natural next step - if you have time to devote to it. It can lead to full-time income. Start by contacting long distance property owners where you live and pitch your services. Chances are, you’ll find people who are delighted to make money from their second home.
Retirement plan—The U.S. government allows for money in retirement accounts to be used to purchase real estate, under very specific rules, with a Self-Directed IRA. Instead of using stock and other financial products to grow your retirement account, you can purchase real estate. It’s important to get advice from a qualified financial planner who knows the ins and outs of Self Directed IRA’s, but this can be a way to enjoy your funds set aside for retirement and to leave a legacy for your heirs.
Now that you've thought about some ways to get into the industry, let's look at What Makes a Great VR.