Vacation Rentals

[Luke Hine]

After getting the hang of analyzing 2-4 family properties, I'm starting to look at some vacation properties as well. What are some of the added expenses you deal on a vacation rental? Off the top of my head I'm thinking HOA fee - if it's a condo - and weekly cleaning expenses, increased vacancy during off-peak, etc...

[Erica Muller]

Hi Luke! 

Regarding insurance, you must have this. Not regular insurance but liability insurance which is an addenda added to your regular policy typically costing between $500-800 a year depending on the size and location of your home. The reason you MUST have this is because if someone gets hurt in your home they will sue you, the HOA and the property manager. Because of this if an HOA finds out you don't have a liability policy you will get fined and/or banned from renting short term. Also management companies will NOT take your home into their program without it. This is basic knowledge in the vacation rental industry no matter where in the country you invest.

Other expenses will be your licensing from the county/state in order to legally rent short term. This is usually about $150 a year in Florida. You will need to look into it where ever you buy. In Orlando what most people also pay for is property management. They book the home for you and oversee it. They typically charge about $120 per month as well as take a commission on the bookings they put in place but not on the ones you do (owner bookings). 

You will also pay a lot more for things like pool heat (if you have a pool) because renters use this like crazy when it's not hot out. 

If you get a single family home, try to get a South facing lot as this cuts down on pool heating expenses. 

Remember to factor in things like credit card fees (every time someone books you get charged), marketing expenses for listing online and creating your property website (if you plan to do it yourself) and things that typically need to be replaced such as light bulbs and little odds and ends. Believe it or not, you will go through a ton of these little things which adds up so make sure you factor in at least one month of income for reserves. 

As for furnishings, in my experience dealing with vacation rentals, a two-three bedroom condo (furnished to rental ready standards) will run you about 15K. On a single family home you're looking at about 25K for a 3-4 bedroom. 

My advice is to buy one already furnished with bookings already in place so it's turnkey. All you have to do is take it over. 

Good luck :)