For years, investing in rental properties has been all about long-term gains. While rent checks may cover the bills and net a small sum, the real value in rental property investing comes from appreciation, not rental income.
Vacation rentals have turned that paradigm on its head, allowing investors to reap both short-term profits and long-term gains from their properties. If you want to get into the vacation rental market in Chicago, you’ll first need to consult with a trusted and skilled realtor like Jake Tasharski
. Here’s what else you need to know.
How to Pay for an Investment Property
Cash is the preferred way to pay for investment properties. When you buy an investment property in cash, you maximize cash flow while minimizing interest and financing expenses.
However, not all investors have the ability to pay cash for a rental property. That’s especially true of first-time real estate investors. These buyers will have to turn to conventional mortgages to finance their purchase, as FHA, VA, and other loan types can only be used for owner-occupied homes. A conventional loan lets buyers choose between adjustable- and fixed-rate loans and can be used for second homes and investment properties. Conventional mortgage lenders typically require a down payment of at least 20 percent for investment purchases, although loans for owner-occupied homes allow as little as 3 percent down.
If you do require financing for a vacation rental purchase, make sure your projected rental income is enough to cover the mortgage payment and other expenses. Factor both high-season and low-season rates to accurately project year-round revenue.
How to Prepare a Property for Renters
After closing on a vacation rental property, you need to get it ready
for its first renters. This is your opportunity to maximize your investment property’s income, so don’t skip it!
Luckily, many of the upgrades that make a property attractive to vacationers are inexpensive. These are four cost-effective updates that renters will appreciate:
- Smart locks and switches: Smart devices are a vacation rental owner’s best friend. Whether you need to issue keys to renters, control the lights and thermostat, or make a property look occupied even when it’s not, smart gadgets can help. Smart locks, switches, and thermostats are all popular picks, but keep in mind you may need a local electrician for installation.
- Durable flooring: Floors in a vacation rental see a lot of traffic. Make sure your property’s floors are up to the challenge by replacing wall-to-wall carpet with durable, yet attractive flooring options like laminate plank, bamboo, or carpet tiles. Keep in mind that if you go with carpet tiles, you may need to bring in a carpet cleaner on occasion to remove dirt and stains. Dry cleaning carpet typically costs $75 - $350, but carbonated cleaning could cost more.
- In-unit laundry. Travelers appreciate the ability to refresh their laundry while away, especially when traveling with kids. You can find budget-friendly washer dryer sets for under $1,000, but expect to pay significantly more if hookups are needed.
Where to Market a Vacation Rental
Once your property is ready to hit the market, you need to find the best places to list your vacation rental. While some investors find success marketing through their own website, vacation rental platforms
like Airbnb, HomeAway, and Vrbo attract a lot more traffic, allowing your rental to reach a wider audience.
Short-term rentals can be a profitable venture for real estate investors, but it’s important for buyers to understand what they’re getting into when they buy a vacation rental. Vacation renters have a different set of expectations than long-term tenants, and short-term rentals come with a different set of challenges for owners as well. However, when you take care to buy a property with a promising ROI and make the right improvements to reach renters, you’ll find great success in the vacation rental market.
For expert and dedicated service, connect with Jake Tasharski
at (312) 646-0284 to achieve your real estate goals in Chicago!
Written by Henry Moore