Over 59 million tourists visit Orlando each year. They come for many reasons, of course, including to visit such popular destinations as Walt Disney World, SeaWorld, Universal Studios, Wet ‘N Wild Water Park and even the Kennedy Space Center.
Offering your home as a vacation rental or forming an investment group to purchase those kinds of properties has the potential to be very lucrative.
When purchasing a vacation property specifically as an income-generating machine, it’s necessary to do very thorough research.
1. Talk to People Who Already Own Rental Property
This is a burgeoning business, but it can also be very stressful. Seek out people who have been established for a few years and ask for their advice and input.
If you decide to go ahead, then there’s some serious research to conduct!
2. Ask: Does it Make Financial Sense?
Talk to your tax advisor to see how purchasing a vacation property specifically for commercial purposes will affect your tax rate. Your financial advisor should be familiar with both the local property tax codes and the federal tax codes regarding profits and losses for such properties.
3. Choose the Right Location
Orlando is a city of some 270,000 people, spread out over 110 square miles. The closer the vacation home is to the main tourist destinations, the more expensive it will be to purchase — but also the more lucrative it will be.
Walt Disney World is probably the most visited theme park in the world. It is actually located in Buena Vista, which is 16.3 miles Southwest of Orlando on I-4E, near the town of Kissimmee. There are hundreds of houses — anything from bungalows to cottages to condos — surrounding the outskirts of this property, and many have their own pools! Whether any of this prime real estate will be open for purchase is, of course, another question.
Most of the other major theme parks are also located to the Southwest of Orlando, including Universal Studios, Wet ‘N Wild, Sea World, and Gatorland. Kennedy Space Center is 45 miles due East of Orlando, on the East coast near Cocoa Beach.
Research the cost and location of properties near all these locations before making a decision as to where you should purchase your investment property.
4. Find an Affordable Property
There is more to the cost of a vacation home than just its initial price tag and subsequent monthly mortgage payments. There are insurance, utilities, maintenance, and even security system costs to consider.
Insurance costs in particular can be heavy. First, there is insurance on the home itself, and then you’ll need an insurance policy that covers guests in your home. Consult an insurance representative who has experience with vacation home rental properties before making any decisions.
5. Make Sure You Can Rent Out the Property
Some neighborhoods or local governments actually forbid homeowners from turning their home into a vacation rental property. Seek out the leaders of the home owner’s association, if any, to discuss your plans. Do some research to see if any petitions have been made by people in the neighborhood asking to rescind any laws that allow rental of property.
6. Don’t Count on Income From the Property to Pay Your Mortgage
The ideal strategy for purchasing a vacation home for investment is to charge enough so that your income from the property on a monthly basis will pay for all your monthly outlays, including the mortgage cost. That way, you are never out of pocket at all.
In reality, however, that is rarely the way it works — at least for the first year.
Even though Orlando is a prime vacation spot and even if you manage to purchase your property in a prime location, you will still need to get it listed on the various marketplace websites, advertise it, and build up a steady clientele. That can take time, and at the same time, you need to be able to pay all your bills while you’re waiting for that steady income to come in.
In order to purchase a vacation home, you will be expected to make a 20% down payment, and you will typically not be able to obtain a loan if your mortgage payment is more than 36% of your monthly income (which does not include the potential income from the property itself, remember).
7. Make Necessary Repairs
Even if you purchase a brand new home, be aware that the necessity for repairs will always be with you. Large appliances like dishwashers and refrigerators have a habit of giving out at the worst possible moment, and since things typically come in threes, the air-conditioning could go out at the same time, too. You’ll need enough cash to be able to draw upon to meet such unexpected bills.
The rule of thumb is always to plan for the worst-case scenario. So, since it’s unlikely that all three of your major appliances will break down at the same time, you will be ahead of the game if you keep enough cash reserves to repair all three at the same time!
8. Choose an Investment Group Wisely
If you can’t afford a vacation rental property on your own, you may elect to join an investment consortium. This is an ideal way to enter the property investment market, but make sure that the consortium (or group or partnership — whatever the legal entity may be) is efficiently run.
If you are getting together with family members to invest in property, it is essential that it be run on a legal basis, with everything stated in binding contracts. This is just common sense — remember that oral agreements typically aren’t worth the paper they aren’t written on.
9. Create a Marketing Plan
Once the decision to purchase a vacation home property for investment purposes has been made, start work on your marketing plan immediately. You’ll probably need several months to get all your ducks in a row in this regard.
You’ll want to list your property on all available vacation rental property marketplace websites, of course, but you will also want your own website specific to the property. This website should consist of a thorough description of the property and all its amenities, dozens of professional-quality photos, and at least one video walk-through.
Create social media accounts for the property so you can start getting the word out that “an exciting new vacation rental home will soon be open!”
Running a vacation home rental business is a lot of work, but if properly done, it can be quite lucrative.