You might have thought of venturing into real estate investment to expand your financial assets or have that dream beach residence or hillside cottage for the holidays. And while real estate investment may seem risky and expensive, knowing the truths about investing in vacation homes will help you jumpstart your plans in the right direction.
Here are seven myths about investing in vacation homes and the facts that will guide you in making the right buying decisions.
Myth #1: You Need to Have a Lot of Money to Invest
While having plenty of cash to buy your dream beach house or cottage by the woods is preferable, you don’t need to be rich to invest in your first vacation home.
The idea that investing in a vacation home is only for the rich stems from the risks of investing in real estate, in general. But the truth is, there are many flexible payment options and properties that suit your preferences and budget. Just be sure to have enough funds to cover the down payment and mortgage expenses when buying.
Myth #2: You Shouldn’t Buy During Peak Season
It may seem more sensible to buy a beach house or a ski lodge in advance to get cheaper deals and to avoid other interested buyers from purchasing the property you are eyeing. However, that may not always be the best decision, especially if you plan to rent out your vacation home.
Buying during the peak season gives you a clear idea of what you will need for your vacation rental home once it gets reservations left and right. Doing so also allows you to ask the seller how many rentals the vacation home gets during peak and low seasons.
Myth #3: A Regular Homeowner’s Insurance is Enough
You might think that getting a regular homeowner’s insurance is enough to protect your vacation home from disasters and other potential problems. But if you rent out the property, a homeowner’s insurance might not be enough to cover maintenance and damages.
Getting vacation rental insurance includes coverage in structure, contents, liability, and natural disaster policies. This insurance is crucial, especially if your vacation home is a renovated and remodeled foreclosed property. You wouldn’t want to continually break the bank to pay for damages, repairs, and perhaps potential lawsuits because of calamities and accidents.
Myth #4: Down Payment is Not Necessary
Buying a vacation home may require you to pay a 10% down payment or even lower depending on the terms of your loan. If you plan to rent it out, your lender may require at least 20% as down payment in buying a vacation residence.
It is also essential to talk to a savvy lender to negotiate if you can pay a downpayment according to your means. Doing so will help you reevaluate which mortgage plans won’t break your budget and which property has a strong potential of generating more income when rented out.
Myth #5: Buying a Standalone Home is the Most Lucrative Option
You might think buying a standalone home is the most lucrative option as a vacation home, but it might be more expensive in the long run due to high selling prices, maintenance, insurance fees, and tenants looking for cheaper rental rates.
If buying a standalone home is too expensive for you, consider buying condos as they are more affordable and many of them are strategically located close to commercial hubs and other tourist attractions. With more condos being developed in these locations, you may attract more customers and income when you rent out the property.
Myth #6: Rental Fees Cover Everything
A handful of sites like Lamudi and AirBnB have made it more convenient to rent out your properties. These platforms allow you to post pictures of your beach house, staycation condo unit, or foreclosed-house-turned-countryside-cottage for clients to see. Utilizing these platforms may help in generating a steady flow of income that will help in covering some of the costs in maintaining your rental home.
But while having a stable flow of income from your vacation home is a sign of a healthy rental home business, it is important to know that rental fees may not be enough to pay for all mortgages, maintenance, and damage repairs fees. It is best to consult a trusted real estate professional to have a clear picture of the total costs you have to shell out before renting out your property and how long it will take before your rental fees can cover the majority of the expenses.
Myth #7: Investing in a Vacation Home is Risky
Investing in a vacation home may seem risky, especially during times like the current pandemic. However, real estate has been proven a worthy and resilient investment option and maximized by investors who want to achieve economic growth. This also gives you something to leave to your kids and future generations.
Real estate professionals say that “now is the right time to buy,” meaning there will always be an opportunity for you to purchase your ideal property. The last thing you would want is to miss out on your dream beach house or mountain lodge because you thought it would be too risky.
Investing in a vacation home doesn’t have to be difficult and a hassle. Knowing the facts from the myths of investing will help you decide which property fits your preferences and budget. It will also help you pencil out the costs that you will need to rent out your vacation home.