Orlando had over 75 million visitors in 2018. They come for many reasons, including to visit popular destinations such as Walt Disney World, SeaWorld, Universal Studios, Wet ‘n Wild Water Park, and even the Kennedy Space Center.
Offering your home as a vacation rental or forming an investment group to buy these types of properties has the potential to be very lucrative.
When purchasing a vacation property, especially as an income generating machine, it is essential to do very thorough research.
1. Talk to people who already own rental properties.
It is a growing business, but it can also be very stressful. Seek out people who have been established for a few years and ask for their advice and input.
If you decide to go ahead, there is some serious research to be done!
2. Ask: Does it make financial sense?
Talk to your tax advisor to see how buying a vacation property specifically for business purposes will affect your tax rate. Your financial advisor should be familiar with both the local property tax code and the federal tax code regarding the gains and losses of such assets.
3. Choose the right location.
Orlando is a city of approximately 270,000 people, spread over 110 square miles. The closer the vacation home is to major tourist destinations, the more expensive it will be to buy – but the more attractive it will be.
Walt Disney World is probably the most visited theme park in the world. It’s actually located in Buena Vista, 16.3 miles southwest of Orlando on I-4E, near the city of Kissimmee. There are hundreds of homes on the outskirts of this property – anything from bungalows to cottages – and many have their own pools! Whether any of this prime real estate will ever be open for purchase is, of course, another question.
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Most of the other major theme parks are also located southwest of Orlando, including Universal Studios, Wet ‘n Wild, SeaWorld, and Gatorland. Kennedy Space Center is 45 miles east of Orlando on the East Coast near Cocoa Beach.
Before deciding where you should buy your investment property, research the cost and location of properties near all these locations.
4. Find an affordable property.
There’s more to the cost of a vacation home than just its initial price tag and subsequent monthly mortgage payments. There are also the costs of insurance, utilities, maintenance and even security systems to consider.
Insurance costs in particular can be onerous. First, the home itself is insured, and then you’ll need an insurance policy that covers guests in your home. Consult an insurance representative with experience with vacation home rental properties before making any decisions.
5. Make sure you can rent out the property.
Some neighborhoods or local governments actually forbid homeowners from turning their home into a vacation rental property. Seek out homeowners association leaders, if any, to discuss their plans. Do some research to see if there have been any petitions by people in the neighborhood to repeal any laws that allow property rentals.
6. Don’t rely on the income from the property to pay off your mortgage.
The ideal strategy for buying a vacation home for investment is to charge enough so that your income from the property on a monthly basis pays for all your monthly expenses, including mortgage costs. That way, you are never out of pocket.
In reality, though, it rarely works—at least for the first year.
Even though Orlando is a prime vacation spot and even if you manage to buy your property in a prime location, you’ll still need to list it on various marketplace websites, advertise it, and build up a steady clientele. It can take time, and at the same time, you need to be able to pay all your bills while you’re waiting for that steady income to come in.
To buy a vacation home, you’ll be expected to put down a 20% down payment, and you generally won’t be able to get a loan if your mortgage payment exceeds 36% of your monthly income (not including the property itself). income, remember).
7. Make necessary repairs.
Even if you buy a new home, keep in mind that the need for repairs will always be with you. Large appliances like dishwashers and refrigerators have a habit of going out at the worst possible times, and since things usually come in threes, air conditioning can also go out at the same time. You will need enough cash to meet such unexpected bills.
The rule of thumb is to always plan for the worst case scenario. So, since it’s unlikely that all three of your major appliances will break down at the same time, you’ll be way ahead of the game if you have enough cash reserves to repair all three at the same time!
8. Choose an investment group wisely.
If you cannot afford to purchase a vacation rental property on your own, you may elect to join an investment association. This is an ideal way to enter the property investment market, but make sure that the consortium (or group or partnership – whatever the legal entity is) is run efficiently.
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If you are teaming up with family members to invest in property, it is essential to run it on a legal basis, with binding contracts laying out everything. This is just common sense – remember that oral agreements are usually not worth the paper they’re not written on.
9. Create a marketing plan.
Once the decision has been made to buy a vacation home property for investment purposes, get to work on your marketing plan immediately. You will probably need several months to get all your ducks in a row in this regard.
Of course, you’ll want to list your property on all of the available vacation rental property marketplace websites, but you’ll also want to have your own website specific to the property. This website should include a detailed description of the property and all of its amenities, dozens of professional-quality photographs, and at least one video walk-through.
Create social media accounts for the property so you can start spreading the word that “an exciting new vacation rental home will be opening soon!”
We have updated this article and are republishing it to help our new readers.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
