Building Wealth Through Real Estate Investment

Amy Collett of

For first-time real estate investors, vacation rental properties are a popular choice. You typically have the option of renting to tourists on a part-time basis, or to residents during the off-season, for longer durations. You can also enjoy the space on your own when it’s unoccupied. While the approach may seem tempting, you’re wise to do your research before taking the plunge. An app like Foliolens can help you take away some of the guesswork.

Do Your Research

Before buying any investment property, it’s important to understand the housing market in the vicinity you’re looking to buy. Recognizing vacancy rates and average going rental fees will help you determine what you can afford, based on anticipated return, and what you’ll need to charge in rent to cover your mortgage and your overhead. Buying a rental property is much like a traditional home mortgage, but there are some additional hoops you’ll need to jump through, and you’re likely to incur a higher interest rate for an investment loan. A real estate agent or mortgage lender can help you make informed choices based on your income, credit score, assets, your other credit obligations, and your debt-to-income ratio.

Searching for Property

You’ll want to take several things into consideration when comparing shopping vacation rental properties. In addition to staying in your price range and sticking to desirable neighborhoods close to popular attractions, HSH recommends looking at the age and condition of the property. Older places may be less expensive, but require a higher degree of upkeep and maintenance than newer pricier spaces; on the other hand, newer properties may allow you to command higher rent, require less upkeep, and be more energy-efficient, which can help you save on heating and cooling costs. Compare homes in areas of interest to get a sense of what amenities are in high demand. Also learn whether there are home owner association restrictions, ample parking, and easy access to transportation -according to Holiday Vacation Rentals, these will be important to your tourist market.

Factor in Overhead

In addition to paying the mortgage, property taxes, and insurance, investment properties come with additional overhead. You’ll need to budget for repairs, updates, and both routine and emergency maintenance. The property will need to be advertised, potential tenets screened, rental agreements drafted, and rent collected. You may also need to outfit the space with furniture and home goods. If you don’t plan to do these tasks yourself, you’ll need to hire a property manager or management company, which will cut into your profits. If the property is vacant, you’ll still be incurring all of these costs; also keep in mind that tourists in destination cities may not be as gentle with your property as renters in less popular locations. This could lead to additional cleaning and repair costs, as well as the potential for fielding calls from other full-time neighborhood residents about noise and traffic.

Operate Like a Business

To protect yourself and your assets from some types of liability and reduce your tax burden and paperwork, you’re wise to establish yourself as a limited liability company, or LLC, as a way to register your rental property as a formal business entity. You can do the legwork yourself, hire a pricey attorney to do the work on your behalf, or your best bet, utilize an online formation company to handle the details. LLC formation laws vary from one state to another, so you’ll want to learn about yours before moving ahead. For example, search, “ LLC formation California .” Running your investment property as a business will help you be eligible for various tax write-offs, and you’ll be able to deduct things like the cost of hiring a property manager or maintenance staff.

A vacation investment property can help you start building wealth through real estate investment, but it can be a potential money pit if you don’t conduct your due diligence. A real estate professional who specializes in investment properties can help you make educated decisions.

Foliolens can help you manage your rental property with ease, with features like a portfolio dashboard, document management system, automated reminders, and tax information. Visit the site today to learn more.

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