Putting Vacation Rentals To Work For You

If you’re looking for a good place to invest some money, consider vacation rentals as a possibility. In the right circumstances, vacation rentals can be a good investment with monthly income to offset costs, little-to-no negative impact on an investor’s debt ratio, and the added benefit of access to a vacation home throughout the year.

Let’s take a closer look at each benefit.

With a little market research, a vacation rental owner can set a competitive rate that in many cases will cover most or all of the cost of expenses such as mortgage, insurance, taxes and general upkeep. In such scenarios, the major investment occurs at purchase time, while market rent covers the owner’s monthly payouts. So in most months, the investment is largely paying for itself.

An accepted rule-of-thumb for buying rental properties is to allow for 75% of the market rent to apply for the property. If a customary monthly rental rate is $2,000 for example and a mortgage payment is $1,500, mortgage guidelines would allocate $1,500 for the rental — essentially showing no increase of debt ratio for the buyer.  Purchasers of rentals can also often use actual prior 12 month rental income as a way of validating the property’s viable rental potential.

Of course, owners of vacation properties also have the privilege of staying in these homes from time-to-time. The trade off, especially in peak seasons, is that every week the property is used instead of rented, reduces its overall income potential. It’s also important not to misrepresent usage of a vacation home. Occupancy fraud is one of the most common forms of mortgage fraud and not worth the risk accompanying it. When a mortgage lender asks whether the purchase is for primary, secondary or rental occupancy, be honest with the answer.

Real estate agents and financial loan officers, such as the Team Move/OVM Financial team in Sanford can help you decide if vacation rentals can be a good investment vehicle for your specific situation.  For more information about investment rentals, please visit the Team Move blog. Feel free to contact Team Move at 919-777-0114.