A vacation home provides a relaxing retreat. It can also be a source of income when the homeowner isn’t in residence. Once successful with one rental, property owners may become interested in expanding their portfolio from vacation rentals to year-round rentals. Homeowners interested in acquiring properties as income-generating investments can learn from these top tips from experienced real estate investors.
There’s more to “location, location, location” than … well, location. For a property to attract long-term tenants, it must offer practical benefits like good schools, nearby shopping and recreation, and a low crime rate. Proximity to good medical care is also a concern.
Knowing your market also involves keeping up with trends on employment and jobs in the area, average rental rates (including whether they’re going up or down), and related economic factors like interest rates and average income in the area.
Real estate investors take on more costs than just the mortgage. Recurring costs include maintenance and repair, marketing, insurance, and legal fees. Real estate investors need advisors to help with the tax implications of owning rental property. They must also make accurate estimates about utility costs, and the costs of vacancies. Experienced real estate investors set aside a contingency fund to cover unexpected expenses or continue mortgage and property tax payments when vacancies reduce income.
Owning rental properties comes with a variety of risks. Landlords need property insurance to cover risks of damage from storms or fires, as well as liability insurance in case of lawsuits over injuries tenants may suffer on the property. Property owners must weigh risks of burglary or vandalism, or if renovations or repairs reveal conditions that don’t meet updated building codes.
As their portfolio of homes expands, experienced real estate investors realize that using a professional property manager reduces risk, and pays off in time saved and legal headaches averted. The management company will market the property, screen tenants, deal with maintenance, and maintain the necessary records. This frees the investor to focus on finding their next profitable property.
Long-term tenants are looking for a home to live in, not a vacation escape. Many new real estate investors make the mistake of going overboard with upgrades and renovations, when the basics will work just fine. Spectacular countertops and high-end appliances are unlikely to provide enough return on investment for mid-range homes in mid-range neighborhoods. If the home is clean, looks attractive, and everything works, it should attract tenants.