Purchasing Vacation Rentals - Lets Talk About It

[Aaron Heiskell]

So here on the Coast of North Carolina, Vacation Rentals are HOT.  They are great for vacationing, provide excellent ocean views, have a solid amount of things to do during the season, and most places are night life friendly! 
On the homeowner side; they provide good returns, a nice place to come stay as a second home or vacation to. But what are things that we DON’T think or talk about for owning those types of investment properties?

1) Carrying Costs - No, I’m not just talking about your debt service, taxes, home owners insurance, or property management fees (which can be hefty in some areas).   I’m talking about the water bill, sewer, electric, trash services(which can be double the amount during the hot rental seasons because they come twice as often), internet, cable, and on and on and on.  
2) Cleaning Services - if you do Week long rentals, you have to turn that property every week, so your cleaners need to be quick AND thorough.  No tenant wants to want into a dirty house when they are on vacation.  But some of those cleaners can be pretty expensive, And it’s all based on the size of your property. 
3) Amenities - a huge key in vacation rentals, isn’t just stuffing tenants in day after day/ week after week.  It is the repeat business that you really make your money on. You get your repeat business from what amenities you provide those tenants.  If you don’t have great ocean views, you better have a pool, or hot tub, or a MONSTER TV in the common areas, with TVs in all the bedrooms.  You also need to look at what types of linens you are providing.  People go on vacation and choose to stay at a house on the beach, not a hotel, but they want hotel-like service.  So buy the nice sheets people.  Or have a turn down provider come in and make the beds and put the chocolates on the pillow, it will cost you more from week to week, but your business will prove to be more successful with returning happy tenants.  
4) Flood Insurance - when you are purchasing Coastal Properties in NC, have your agent (or who ever is looking into deals for you) check and see what flood zone the property is in(examples VE, AE, X), and whether or not it is Federal Flood Zone, or COBRA Zone.  The difference that even most agents don’t understand, is how the flood zones affect your flood insurance.  If you’re in a Federal Flood Zone, you get a government backed insurance, while in a COBRA zone, you have to pay for private flood insurance, which can be very costly depending on the flood zone (VE,AE, etc) and depending on your elevation certificate. Best advice, get a quote from a local insurance agent.  
5) Vacation Rental Act - just know that if a property is purchased, the tenants have the right to stay there for any booking from the time of closing to 180 days from closing.  Now this is also important because if the property is sold unfurnished, it has to be furnished for those tenants in LIKE fashion from when they booked it.  Example, if they book a week long vacation in a 3 bedroom house and it is advertised as having 2 queen beds,  a room with double bunk beds and a sleeper couch that can sleep 10 people.   You, as the new owner, have to provide those same sleeping arrangements.  You also need to see what is advertised in regards to patio furniture, TVs, or additional amenities that the property states.  

Overall having a vacation rental can be a headache, but can also be very lucrative.  And in our market on the coast of NOrth Carolina, you can get creative with financing in some cases.  Seller financing, purchasing in LLCs, or trusts, etc.  The best advice I can give anyone looking out here is to talk to a Local Real Estate Agent, that knows what the h€|_|_ they are doing!