The real estate market overall is booming, and the vacation rental market is no exception. In fact, the industry is expected to grow, globally, by $62.97 billion between 2020 and 2024, which marks a 7% growth rate. If you are currently thinking about getting into the market and want to know your next steps, consider these questions to ask your realtor pertaining to the vacation rental market:
Can You Afford a Vacation Home?
Obviously, purchasing a new home is a big decision, whether you intend it to be your primary residence or rental vacation property. The first question you must ask is can you afford to make the investment? The answer will depend largely on what you are buying and your own resources and income level. For example, a two-bedroom rental in Nashville will be priced much differently than a two-bedroom bungalow on the beach in Miami. A good rule of thumb to remember is you will need around 20% to 30% of the purchase price upfront to pay as a down payment. Also, keep in mind the credit score minimums are often higher for vacation properties than they are for primary homes.
How to Finance a Vacation Home
As mentioned above, lenders quantify loans for primary homes differently than they do for vacation or bonus properties. Therefore, you will likely have to maintain a higher credit rating and be prepared to put more cash down in the form of a down payment to be able to finance a vacation home.
Is a Vacation Home a Good Investment?
Vacation homes can be a great way to get into the real estate investment market. It is a two-fold investment, not only giving you a way to make income and get your feet wet in terms of what it is like finding and financing investment property, but it also gives you a place you can go to enjoy personally. It’s a win, win.
How to Buy a Vacation Home Out of State
Many people purchase vacations home out of state, which makes sense since they are using it not only for income but for getaways. To begin the process of purchasing a home out of state, you can take virtual tours of the properties you are considering, use Google Maps to get a street view feel of the property, visit in person when you can, and learn the tourist seasons highs and lows in that particular area. It’s also a good idea to work with a real estate agent who lives in the area, so they can share any insider tidbits with you.
Do You Predict the Market to Appreciate?
While no one, even someone very skilled in real estate investing, will know exactly what is going to happen in the future, most will have their hand on the pulse of the industry within their area of expertise. Therefore, ask your realtor if they predict the market to appreciate or maintain healthy levels before you invest in a particular property.
What is The Regulatory Environment Like?
Also, ask about what type of short-term rentals are allowed, and if these laws are likely to change. You need to know what you can and cannot do with your rental vacation property. After all, it does you no good to purchase a property for investment to find you are unable to rent it out due to regulations.
What Are The Tax Implications of Renting out a Vacation Home?
It’s also important to find out how your rental income will affect your taxable income and what that will mean come tax time. In some cases, you might need to inquire about this with your tax professional as they will be the best equipped to give you an accurate and knowledgeable answer about how new income will change your tax landscape.
Consider all the questions to ask a realtor listed above before you consider purchasing a vacation rental property.