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(This guest post was written by Maria Cannon of Hobbyjr.org) Maria created Hobby Jr. to encourage young people to find a hobby they love. Her hobbies include gardening, quilting, sewing, and knitting, which play a major role in maintaining her mental health.)
When you’re ready to take the leap to invest in a vacation rental, connect with experienced broker Chuong Tran to find the ideal property to fit your needs and budget. Reach out today! 480-336-8752
Investing in a Phoenix vacation rental requires some forethought. You want to find a property that will be a dream to visit, both now and in the future. Of course, it also makes sense to invest in a property that could bring in passive income. As you prepare to enter this new venture, US Delta Realty explains how to set yourself up for success.
Cash or Credit?
As Mashvisor notes, one of the dilemmas anyone making an investment faces is how to finance their decision, and your budget will greatly affect what you do. Paying with cash is ideal, so long as you leave enough funds in your accounts to cover other obligations. For instance, you should be in a good position for retirement, you want to have money set up for a rainy day, and if you have kids, you should be ready to help them with college if need be.
If you aren’t in a comfortable position to pay with cash, your next step is to think about how you’ll use the property. MortgageLoan.com points out that investment properties that you intend to use as a second home are viewed differently from those you intend to make money from. As an example, you could use a conventional mortgage for your purchase, although you will need the property to meet certain criteria, such as a resort-type location and distance from your primary residence. On the upside, with a conventional mortgage, you could opt for an adjustable-rate or fixed-rate loan. The icing on the cake: If you put at least 20 percent down, you can avoid mortgage insurance.
If you plan to purchase the property to rent out, there are a couple of things to bear in mind. Not all lenders will allow you to use a conventional loan, and some lenders might require you to set aside extra funds as a safety net. Some investors require as much as six months of house payments, plus an additional two months of house payments in reserves for each non-primary residence you own. Your best bet is to discuss everything with your lender.
Bear in mind your budget should also include things like hiring professional lawn care and bringing in people to take care of maintenance and repairs. And if your new property is far from home, chances are you will want to hire a property manager to watch over things on your behalf. While a property manager will cost extra, having someone handle bookings online, regular cleanings, and on-site support can lead to more positive reviews and increased revenue.
Define Your Details
After sorting the details of your budget, establish search criteria for house hunting. Part of this will involve choosing a general location. You might have something specific in mind, especially if you already have a routine vacation destination. Another option is to choose an area based on general desirability. A qualified real estate professional like Chuong Tran will be able to help you narrow down your Phoenix neighborhood choices.
Then, think through property specifics. For instance, is a swimming pool important to you? Will you mind driving when you visit, or do you want to use public transportation? Is there onsite parking? If you plan to rent it out, think about area attractions guests would enjoy as well. Remember, the more desirable a location is to other people, the steadier the flow of guests, and the better your return if you ever elect to sell the property. To help with the search, you might want to print out a list of amenities and highlight your must-haves.
Consider the Business Side
It’s worth noting that there are significant benefits to turning your vacation rental into a business, especially if you anticipate another rental property purchase down the road. Many rental investors choose the LLC status as a way to gain tax benefits as well as personal asset protection in the event of a dispute.
Investing in a vacation home is a major step, and you want to find the property of your dreams — not fodder for nightmares. Make sure you have your finances in order and think through what you want out of your investment. With good planning, you’ll enjoy your ideal getaway in no time!