Owning a vacation rental can be a very rewarding and profitable venture. It can also be a very difficult, frustrating, and expensive experience if you don’t avoid some very basic pitfalls. Some pitfalls to avoid may seem obvious, but are worth repeating. Others may be things you probably have not even considered.
I own five historic Key West vacation rentals, and I market and manage over 50 for other people. I have been in the vacation rental business since 1994, when I turned a property I owned in Key Largo, Florida into my first vacation home. Based on decades of experience, I offer below 8 of the most basic and common property pitfalls to avoid when owning a vacation home. In all the years I’ve been in this business, I continue to see people make the same mistakes over and over again that could be easily avoided with forethought, better planning, and some professional guidance.
While it’s not pleasant to talk about the negative realities of owning vacation rentals, it is my hope that you can learn from the mishaps of others and be able to maximize the benefits of owning your vacation home. Think these through carefully before you ‘take the plunge’ into ownership of a vacation home.
Don’t Buy the Wrong House:
Seem like an obvious statement? Well, the adage ‘Hindsight is 20/20′ is a good one to ponder ahead of time in this critical first step. I’ve seen many people ‘fall in love’ with a house or cottage they find while on vacation themselves, and decide it will make an ideal 2nd home and perfect rental. Be sure you ‘knock the romance out of your head’ and carefully consider how desirable a property will actually be perceived by potential guests and if you can afford it. First, find out what size and configuration of properties that are most in demand in the area you want to buy. For example, how many bedrooms and bathrooms do most renters seek? Do guests want historic homes, condos, cottages, studios or does it matter? Is a pool important, or a garden? Are you willing and able to make any needed renovations?
Don’t forget to Make a Business Plan:
Make a basic business plan and determine if you can make enough money through your rentals to justify the purchase. Get the help of a rental professional and an accountant or financial advisor to create a preliminary plan. Learn how much you can expect to pay to operate your vacation property, and how much you can expect earn in income. Get actual or projected occupancy rates from an established local rental agency. Find out what time of year you can expect to rent your home. Is there a short tourist season, or is there a year around season? Some communities have a high demand for private vacation homes and they command excellent rental rates. But other areas have a glut of unsold homes now being offered as vacation properties, driving rental rates down too low to cover the cost of owning a 2nd home.
Don’t Buy a Property in the Wrong Location or Neighborhood:
Carefully research the location, e.g., just because an extra 15 blocks from the center of town or the beach is no big deal to you, this could be too far away and a deal breaker for potential guests. In other words, make sure that the property you buy will be appealing to potential vacationers. And, what do the neighbors think about vacation rentals being operated next to where they live? This has been, and still is, a huge ongoing issue for many communities across the country. Many cities and towns are grappling about whether to allow or restrict short-term rentals. Some neighbors are vehemently opposed to the idea of a ‘revolving door of tourists’ coming in and out of their neighborhood. Other areas are thrilled to have tourists bringing money into their communities.
Don’t Ignore Community Rules and Regulatory Agencies:
As vacation homes have become increasingly popular, many communities have created rules and regulations that restrict and govern property rentals. Contact the community licensing department where you are planning to purchase a vacation property. Find out if there are restrictions on the time and frequency you can rent your home. Find out if you need to purchase a business license or a special transient rental license. Ask if you need to have a health and safety inspection by the city, county, or state. Find out if you need to collect and pay a tourist bed tax and state sales tax. Don’t ignore the rules and regulations. In some communities, code enforcement officers scan vacation rental websites in search of properties that are offered as illegal rentals. Getting caught breaking the law unknowingly can be expensive and embarrassing!
Don’t Pretend You Can Avoid Renovation and Major Repairs:
Be prepared to accept the fact that owning a successful vacation home means that ongoing quality control becomes a way of life. Unless your property is located in an area where luxury and comfort are disregarded as superfluous, expect to renovate and keep your property to a high quality standard. If you want your rental to be competitive in the vacation market, expect to upgrade you kitchen, bathrooms, replace carpets, floors, decks, porches, windows, repaint, landscape, and put on a new roof when the time comes. In some locations you will need to add a swimming pool or at least a Jacuzzi. Make sure the local building department will allow you to make upgrades. Figure out a time to make needed repairs, and mark off time in your rental calendar to do the work.
Don’t Under Estimate the Importance of Housekeeping and Property Maintenance:
Even after your vacation home is upgraded and operating, you must commit to ongoing housekeeping and on-call maintenance services. If you don’t provide good housekeeping services and regular property maintenance to keep the property to a quality standard, you will most likely live with constant complaints. And you can expect unhappy guests who may be compelled to write bad reviews about your property on internet vacation travel logs and rental websites. A maintenance person must be on-call to fix the myriad of little things that happen in a house such as clogged toilets, mal-functioning a/c or heaters, swimming pool problems, mal-functioning internet connections, and TV remotes to name a few. The more your property is rented, the more maintenance and housekeeping you need o provide.
Don’t Think Your House Can be Successful without Proper Furnishing and Staging:
A common scenario is for new owners of a 2nd home to think they can furnish their property with a hodge-podge of inexpensive garage sale items or discarded personal items. When people do this, they end up with a house that looks like a second-hand store or their own garage sale. If you have a knack for decorating, then go for it. Pick a décor style have fun. It is perfectly acceptable to have a mixture of old and new items, but in the end they all have to work together in a unified style. Buy comfortable furniture – a nice sofa and easy chairs. Choose an attractive micro-fiber fabric, its ideal for vacation homes. Make sure you provide good bed mattresses and the right bed sizes. Most travelers today want king or at least queen size beds. Buy a larger flat screen TV for the living room or den. Unless you have the know-how and the time to do these tasks, hire someone to do them for you. Many furniture stores have staff decorators who offer this service for free.
Don’t Believe it is Simple to Successfully Market and Manage Your Vacation Rental:
If you’ve read this far, you know there is a lot more to owning and operating vacation properties than first meets the eye. With the proliferation of mega vacation rental websites, that make it easy for home owners to advertise their own property, it can seem simpler than it is. There is a lot more to this business than putting up a web page and answering email inquiries and phone calls and keeping an availability calendar. The task of writing rental contracts, collecting money, collecting and paying taxes, staying current with community licensing and rules and regulations, checking guests in and out, providing housekeeping and ongoing maintenance, dealing with complaints, dealing with property damage done by guests, and addressing unhappy neighbors can be daunting. And, I haven’t even addressed the demands or creating a successful marketing campaign. In today’s market it goes beyond writing good ad copy and providing quality property photos on a website. Be prepared to engage in social media such as Facebook and twitter to reach your potential rental guests.