Whether new to the vacation rental business, or already own a property that you’re renting out for vacationers, you’ll benefit from the same question, “What’s the best vacation rental investment property to buy?” Andy Meddick, Owner and President of Resort Rentals for Downtown Beach Rentals, associated with the Andybuythesea Group, Keller Williams Realty Delaware Beaches gives his Top 7 Tips to Buy The Best Vacation Rental Property saying,
“Buy the largest, best located (relative to popular resort amenities) property that your budget will allow. Stock the property full of the amenities that your guests would appreciate given your resort type, rent before you renovate, research local ordinances and community restrictions, get professional representation, set yourself up in line with your competition, and stage the property for practicality, aesthetic appeal, and guest comfort.”
Of course there’s location and amenities, type and size, and sale price/budget to consider. However, there are other factors that can make or break your rosy plan for rental returns. Consider finer details such as the layout of the property, local rental ordinances, whether to self-manage or go with an agency, and even the competing properties and portals that properties are found on.
Kind of obvious but when shopping for a vacation rental property specifically – consider your likely demographics of guests. Look at the property from a vacationer’s viewpoint. Would they be happy in a commercial district in the heart of the action, or boardwalk, versus a quieter and more remote part of town? Are there popular amenities in the resort that most guests would be attracted to? Can your budget stretch to oceanfront/lakefront/dunes?
You do not necessarily need to be water front or in the midst of the action to garner good rental returns. The area alone is enough to attract visitors. We’re getting into he distinction between area amenities and property amenities. If budget allows then by all means go for the property with a boat ramp/dock over a landlocked location. However, if your budget does not allow being at the center of all that’s attracting visitors, then you’d better budget for some extra amenities at your property that offer an incentive over a property closer to the water (and admittedly more expensive to rent). For example, in a beach town, consider adding beach equipment (chairs, umbrellas), bicycles, lawn/beach games, boogie boards, a pull along beach wagon, even scooters ‘included’ in the rental of the property and stored at the property for guest use. Be aware of liability and get those addenda added to your rental agreement!
3. Type and Size of Property
While ‘town house’ may sound more appealing than condo; ‘beach cottage’ better than ‘modest rancher’; at the end of the day, there is no perfect property type and size that will appeal to all people. It’s really a reservations question – you, or your agent should seek to put the guest in the property appropriate to their needs. So, simply put, buy the size and type of property that your budget will allow and one that will appeal to the demographic that your area pulls. So, do your research ahead of buying. Again, it’s demographics. What types of travelers most frequently stay in your area? The needs of families with young children may differ if they’re multi-generational groups. If the difference between two properties is an elevator and accessible options such as extra wide doors and zero entry showers, then go with the property that allows most flexibility.
There is no ideal size of property. However, I counsel my clients that the sweet spot for occupancy really is around 8. I mean heads in beds in bedrooms when I say occupancy. Sleep capacity is a different matter. The addition of a sleeper sofa in the living room may up your sleep capacity, but your occupancy is going to be set by the bedroom rule. I also advise looking at bathroom capacity. Our most popular property in our rental property portfolio is not ocean front. In fact it is 4 blocks and a 20 minute walk back off of the ocean. The property, not just a gorgeous property, has the perfect layout for short term rentals: 4 bedrooms with FOUR bathrooms. Yes, each bedroom has its own private bathroom. Think of the fights avoided, the dialing down on teenage drama etc! Additionally this property has two masters: first and second floor options. So size – best is 3 to 4 bedrooms in my opinion. This gives enough occupancy to cater for most variable in terms of group demographics. Mass appeal. Everyone happy.
Of course when it comes to occupancy – it will very much depend on the type of visitors to your area. A mid-Atlantic beach resort such as ours may vary in the average visitor type than say, Hawaii, or Miami Beach. The majority of our visitors during the summer are large family groups – a multi-generational one family group, or multiple couples with attending children. Hawaii, for example, being a popular honeymoon spot may attract more couples without children. Hence in Rehoboth Beach you may opt for a 3 – 4 bedroom single family home. While in Hawaii, efficiencies and on-bedroom apartments may be more popular. Factor in what types of people most frequently visit your chosen destination, couple that with your budget, and you’ll find an investment property that is both bookable and profitable.
Fixer Uppers. Only one golden rule. Avoid buying a complete fixer upper as a vacation rental property if you can. If you can’t, then get the property in rentable condition before you rent it for the first time. I’m not talking renovation. I’m talking fixing any issues that need attention and renovating later. So fix, rent, renovate. Unless you bought a gut renovation type property, fix the most important issues first (roof, HVAC, bathrooms, kitchen), then budget blocks of time with the property not rented to incrementally improve the property year on year. You don’t have to do everything at once, but make sure that your rates reflect the property. Your reviews will always tell you the truth. Double your time allowance for any contractor project in a resort area. Not because we don’t have good contractors (we do), but because you may not be around full time to keep an eye on the scale/scope of the project and supply chains can ne long in resort areas. Small town legislators can often operate a lot slower than large metropolises. The permit process can be time consuming.
4. Property Layout
In our area (the Delaware Beaches), the days of vacationers renting the same beach house year after year after year that has not been touched in all those years are over. No more are guests happy to put up with lack of air conditioning, leaky roofs, musty smelling accommodations, mismatched aging uncomfortable and stained furnishings, cramped and out dated floor plans, inadequate parking, to name a few! The short term rental industry has experienced a fast paced transformation, blending with the hotel/hospitality industry, driven in huge part by the popularity of HomeAway/VRBO/FlipKey/AirBnb and other such travel sites. ‘Quaint’ no longer cuts it. Guests expect hotel quality comfort and amenities in short term vacation rental properties. Guests also expect the floor plans and amenities they enjoy in their own homes in metropolitan areas: modern floor plans and all the comforts of contemporary life. When looking to purchase a property as a vacation rental investment, pay attention to floor plan. Can the bathrooms, if not placed en-suite to each bedroom, can they be navigated easily for use and privacy when shared between multiple bedrooms, for example. Is there a dining room/area? Is it large enough to accommodate a dining table with a seating capacity to match the sleeping capacity of the property? Are the bedrooms located to offer privacy options and flexibility for multi-family groups in addition to groups of couples? If more than one floor, is there a master on the first floor for older guests? Where is the washer dryer located? Is there an outdoor shower? Are there outdoor dining areas? Screened in porches?
5. Local Rental Ordinances
Avoid a costly mistake. Do due diligence and find out any legislation or community specific rules that may affect your ability to rent your property out. The City of Rehoboth Beach, for example, has a new rental ordinance that requires a local contact, available within 15 minutes to respond to complaints and emergencies, 24×7. North Shores Home Owners Association does not allow groups of unrelated guests to stay at a property. Indian Beach only allows short term rentals for 2-weeks or more.
6. Self-Manage or Go With An Agency?
Naturally I’m going to recommend going with a professional company to manage your vacation rental. Don’t be cheap! It’s well worth the fee if they’re doing it the right way. You’ll get better rates and better occupancy. In Rehoboth Beach, it’s going to be pretty difficult for absentee owners to self-manage with the new requirement for a local contact available within 15 minutes 24×7. Even with only one property, the workload alone of responding to inquiries is a 24×7 job.
7. The Competition
Before you buy. Look at your competition for rentals in your town, your neighborhood, your block. What is the standard of accommodation that you will be competing with? How are their rates? What is their occupancy? Their amenities? How do they advertise and find guests? What are their reviews like?
In Closing (Before You Go To Closing)
Buy the largest, best located (relative to popular resort amenities) property that your budget will allow. Stock the property full of the amenities that your guests would appreciate given your resort type, rent before you renovate, research local ordinances and community restrictions, get professional representation, set yourself up in line with your competition, and stage the property for practicality, aesthetic appeal, and guest comfort.
Did I get it all? If you’ve bought a vacation rental investment property what did you consider before making your purchase? Do you have any comments or feedback that could help others?