Thursday, February 2, 2012

How To Purchase The Perfect Vacation Rental Property

     When selecting a vacation rental property, as an investment or as the place you would like to retire someday, you need to do a little homework prior to making your purchase.  Too often I get a call from someone looking for a vacation rental manager and I have to politely tell them that I won't be able to manage their property.  There is usually a bit of silence and then I get the "why not?"  Usually they got a great deal on a property in a horrible location or they found the perfect property for them, but one that is not desirable to vacationing guests.  I have even received calls from buyers who purchased in an area that has restrictions against nightly vacation rentals.  Those people owned homes they couldn't even rent!  So to avoid buyers remorse here are some steps to take to ensure that doesn't happen to you.

     Here are four essential questions that need to be answered prior to making your purchase and above all ensure that you do your home work.  

A great view is a must!
1.  What is the best location for rentals?

2.  What type of property rents the best?

3.  What amenities come with the property?

4.  How do I select the right Real Estate Agent?

What is the best location for rentals?

     Finding the right location is essential.  Having a great home or condo in a terrible location will not bring you renters.  In fact having a terrible home or condo in a great location will bring you more renters than the great home in a bad location.  

     So how do you find just the right location?  Do some old fashioned footwork and investigate the area where you are thinking of buying.  Make a few phone calls to vacation rental companies and ask them which locations are the best for rental properties.  At the same time you can inquire about their services and they may even have some properties that are up for sale.  Visit some vacation rental websites and see where most of the rentals are located.  That is usually a good indication of the best areas for rentals.  Then look to see how close the attractions, restaurants, grocery stores, gas stations, etc. are to your chosen location.  You might also call the local Convention and Visitors Bureau or the Chamber of Commerce and ask them if they could suggest anyone in that area that could help you out.

Curb Appeal Lake Style
What type of property rents the best?                                              

     After selecting the proper location this is the next most important question to answer.  A lot of mistakes are made at this level of the selection process.  This can be the make or break decision.  You've found the perfect location and then you purchase a property that is not very desirable to renters.  Again you need to do your homework prior to making your purchase.  What size home or condo rents the best?  Does the layout matter?  Does it have a great view? Finding the answer to these questions can significantly increase your rentals.  I will use our area as an example.  Our community is situated on one of the largest man made lakes in the United States.  Most people who come here to vacation visit our area because of the lake.  Yet I get calls from owners wanting us to rent their homes and condos that are not located on the water.  There is a very limited market for that type of rental.  Most renters want a home with a private dock or a condo with a boat slip and a great view of the water.  Anything else just isn't going to rent very well.  

     So how big of a home or condo should I buy?  Obviously what you can purchase will be determined by how much money you have to invest.  Do not buy a property that you cannot pay for without counting on the rental income.  I must stress this, if you are counting on the rental income to make your payments, don't make the purchase.  Again I have seen owners have to sell there rental homes because the income wasn't enough to make their payments and they couldn't afford the home or condo otherwise.  In this day and age you cannot count on the economy and there are always ups and downs.  Be prepared for those times when there may not be enough rental income to make your payments.  Most properties will pay for their upkeep, maintenance, taxes or assessments, etc. but may not make a profit or show income until the property is paid off.  
A hot tub on the water

     At the Lake of the Ozarks, the bigger the better when it comes to vacation rentals.  The bigger the home the more rental nights you will receive and the more you can charge.  The average price in our market is approximately $100.00 per bedroom per night.  You would then add or subtract depending on amenities and how nice the property is, the location, how many it sleeps, etc.  Four and Five bedroom (and larger) homes rent the best in our market.  When it comes to condos it is a little different.  One and two bedroom condos usually rent for more nights than a three or four bedroom condo, but there are exceptions.  Here it seems that those that rent homes are a different crowd than those that rent condos.  The home renter wants more privacy and a private boat dock while the condo renter is about location and the pool.

     We have had homes on our program the bring in $30,000 to $50,000 in gross rental income in a year (and our main season is only Memorial Day through Labor Day) and condos that will gross anywhere from $9,000 for a one bedroom up to $17,000 for a four bedroom unit.  Those are the best renters, the ones who keep their properties updated and have great locations.  These numbers are based on properties that are seeing 50 to 100 rental nights per year.

     Determine what the vacationers visiting your area want and need in terms of size, view, sleeping accommodations and layout of the property.  Many times a group will want separate family and sleeping areas, two levels, extra bathrooms, etc. that make for a more comfortable vacation, especially when two or more families are involved or when every body's favorite relative is along.

A pool always helps
What amenities come with the property?                                    

     This is another area that you need to pay special attention to when purchasing your vacation rental property.  Just because you don't need an additional private bath, separate family area or a garage, your guests may want and need those amenities.  Recently I shared some statistics with a group of 30 condo owners at a complex that my company manages their vacation rentals.  The units that had king beds in the master bedroom averaged twice as many nights as the units that only had a queen bed in the master bedroom.  The average nights for the queen condos was 20 nights per year and the kings averaged 40 nights.  At an average of $150 per night that is a $3000 difference per year, over the size of the bed!  We also get requests to be close to the pool, a T.V. in every bedroom, a bathroom for every bedroom, wifi, large boat slip, great view, 2 car garage, etc. etc.  So it is a good idea to do your homework and find out what visitors to your area want and need.  

     Another example in our area is guests bringing boats.  They need a place to launch their boat, park their trailer (most condo complexes don't allow trailer parking and don't have a boat launch) and a spot to dock their boat.  If you buy a condo without a boat slip you ultimately miss out on the 25% of guests that bring or rent a boat while vacationing at the Lake.  Also if your complex allows trailer parking or has a boat launch the guest can use, then the guest is saving time and money, a plus for any rental situation.

Selecting a Real Estate Agent

     When working with a real estate agent you want to ensure that the agent you choose has experience with vacation rental properties.  They need to know (especially at the Lake of the Ozarks) which areas and condo complexes allow nightly rentals and which areas have restrictions against them.  They also need to know which areas are the most popular and have a good general idea of what a desirable vacation rental property looks like.  

     You don't want an agent just looking to make a sale, at your expense.  At least find an agent that works with vacation rental companies that can answer your questions.  We work with three or four agents in our area that have some knowledge of the industry and once they have an interested client they allow us to work with them to help them through the process.  Even if we don't end up managing their property we still want to help buyers through the process of selecting a property they will like and one that will provide for maximum vacation rental income.

If you need help

     Please feel free to give us a call if you are looking to invest in a vacation rental property at the Lake of the Ozarks.  We will be glad to assist you and there will be no obligation to let us manage your property.  In fact we often refer clients to other vacation rental companies if we feel they would be a better fit with that particular company.  If you are just starting we can help you determine the best type of property for your purchase and we can refer you to the top real estate agents in our market.  

     We currently manage more than $25,000,000 worth of vacation rental properties here at the beautiful Lake of the Ozarks and have served close to 120,000 guests in the last 26 years.  Our professional staff includes a licensed real estate broker, interior designer, rental sales staff as well as resources for maintenance and housekeeping.   We have logged over 50,000 rental nights since 1986 and are one of the leading and most respected vacation rental companies in Central Missouri.

     To view videos of some of our properties please click on the links below.  Until next time, have a great day and Happy Renting!

Key Largo Vacation Home

Ridgewood Court Vacation Home

Bridge Point Vacation Condo