Guest Post Written by Andrea Needham, Eldersday.org for Access Adventure.net
If you’ve accumulated savings and you’re hoping to grow your wealth, you may be thinking
about purchasing a vacation property. This is an excellent way to gain a passive income and
protect your money but, for those who are inexperienced, it can also be hard work, surprisingly
expensive, and, most importantly, risky. Access Adventure outlines what to look out for.
Understanding the Pros and Cons, and Finding the Right Property.
Investing in real estate is never an automatic profit – if you want to make money, you need to
pay close attention to factors like location, state of the property, and market fluctuations.
Understand that there are pros and cons of choosing to invest in real estate. As stated above,
pros can include a steady stream of income; it’s also a sustainable business model, and there’s
a low barrier of entry. Cons include maintenance, marketing, and the cost to finance an
investment property.
Location alone is a crucial element as this can affect the home’s seasonal appeal, appreciation
rates, and accessibility from your own residences (affecting how easily you can travel for
maintenance, key exchanges, etc.). A thorough neighborhood analysis will help you to better
understand local traffic, climate, property values, employment rates, and tourism appeal.
As well as location, you also need to consider the appeal of the property itself. A one-bed, city
apartment occupies a certain niche for those who just want a base of operations when visiting,
an open-plan beach villa satisfies another need entirely. Before you even think about
purchasing a property, BiggerPockets notes that you need to understand its ‘angle’ and how this
corresponds with the seasons. You may see a cheap, available prospect and want to leap into a
purchase but, if you’re looking to rent this out, you want to first be certain that you’ll have visitors
more than 3 months of the year.
Understanding Costs and Protecting Yourself With an LLC
Purchasing a vacation property is often less straightforward than doing so for your first home
and you’ll need to plan your budget accordingly. The first difference you’ll need to contend with
is a higher down payment; according to Red Door Company, this will typically cost 20-30% of
15-30 year mortgages on properties that are not owner-occupied as financial lenders believe
investment properties represent a greater risk of default.
You should also take the time to familiarize yourself with the various tax implications. As a
landlord, rental income is taxed as normal income but you’ll find you can deduct interest (such
as mortgage interest payments on loans used to acquire or improve rental property and interest
on credit cards). Repairs are also deductible, as is travel (driving to and from the rental building)
and even home office expenses (for example, if you have a space devoted to managing your
accounts).
To protect yourself and your assets from litigation it’s often a good idea to form a Limited
Liability Company (LLC) for your rental business. Structuring your business as an LLC also
comes with certain tax advantages, and less paperwork is involved. First you’ll need to learn all
you can about how to start an LLC, then consider using a formation service as this will save you
on lawyer fees and speed up the process.
Management Strategies
Once you’ve acquired a property, your next priority is to get value out of it. Home improvements
and renovations are not only more likely to increase the number of guests you’re able to attract,
but they can also provide a great return on investment when it comes to selling the property.
Many of the necessary major repairs can be addressed upfront when you first purchase the
property, which is where 818 Inspections comes into play. A home inspection will identify issues
such as roof damage, electrical issues, and plumbing problems.
Also pay close attention to design trends (those to adopt and to avoid) and always focus on
practical elements such as plumbing, heating, electricity, and ensuring that all the appliances
work as intended – although less aesthetically attractive, these elements will prove crucial to
your long-term profit.
Managing tenants or guests can be a long-winded and exhausting process. If you’re willing to
sacrifice some of your profits, it’s sometimes worth bringing in a property management company
to handle day-to-day operations. They can also help with marketing/advertising, screen
tenants/guests, and carry out any necessary maintenance or repairs.
Even with all the potential for success, it’s important to remember that a vacation property still
represents some risk. If you want to profit from your first real estate investment, you’ll need to
weigh the pros and cons, carry out plenty of prior research, form an LLC, and understand the
movements of the market.
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