March Break Special - Vacation properties

This time of year, people who inhabit the freezing North flock in large numbers to the sunny Southern climate for a well-deserved vacation.  For example, approximately 86 million people travelled to Florida in 2012.  Just imagine the multiplication of these numbers when you add the Caribbean, California and Arizona; not to mention South Texas, Central America, South America and other sun locations, the numbers are quite staggering.

Within North America there is a huge demographic group of Baby Boomers numbering approximately 76 million people.  This group’s age range is between late 40s and late 60s.  This group, starting now and through the coming two decades will be hitting retirement age.  As time passes and with increasing age this group will begin to dread winter even more than they do now.  This will lead to greater migration to southern destinations.  The “snowbirds” trend will continue and expand over the coming two decades.

There are approximately 45 million people over 65 years of age in North America.  In the next twenty years, as the Baby Boomers age, the number of over 65 persons will increase by approximately 31 million, an increase of 169%.  Add to this, the developing trend in year 30 marriage break ups, currently trending over 50%, there should be very high demand for properties and specifically, properties in sun locations.

Often people will ask about investing in vacation rentals.  The idea is very appealing, have a great place, near the ocean, to use when you want and rent it the rest of the year to cover the costs.  This trend will increase and become far more main stream and popular in the coming years as aging occurs. Increased demand is a huge driving force in increased property values in sun locations.

There are some very important considerations when looking at vacation rentals. 
The first and biggest one is vacancy.  With a vacation rental, you can expect between 20 and 30 weeks a year of occupancy.  This presents an interesting option, since as an owner, you can occupy the property the remaining weeks each year.  It is important to note, the majority of your vacancy in sun locations will likely fall in May through November, whereas your property is likely to experience 90% plus occupancy in the remaining months. This can be different in places with different attractions like theme parks, ski hills or golf courses.

With a vacation property, approximately 60% of your income goes to operating expenses.  These expenses include things like all the utilities, pool costs, cable, internet, VOIP phone, housekeeping, etc.  This is a fully operational house so the majority of expenses at your current home you will incur at your vacation property.

It is important to remember that you are not only providing a rental property, but also all the beds, linens, cooking utensils, toasters, televisions, etc.  These items can have a short lifespan, so budgeting for replacement is essential.  Not only do you have to buy the furnishings, but you also have to maintain and replace these items as they age.

When you earn income in another country you will have to pay taxes on this income.  Foreign taxes can be confusing and you should consult an expert, as you are dealing with NAFTA, trade agreements, etc.  There can also be issues with immigration status if you stay for longer terms.  It is also important to consult insurance and health care professionals to ensure you are properly setup for a long term absence.

With a vacation rental there are many potential emergencies on a weekly basis.  In a standard rental there will be a few emergencies annually; whereas with a vacation rental can have a few emergencies every week.  When people are on vacation, emergencies become magnified and need to be solved immediately.  Property management is essential.

Speaking to management companies, they seem to be able to consistently achieve 20 to 25 weeks a year of occupancy.  To push that number higher, successful owners will need to start a program of self-promotion of their property.  A property specific web site with photos and videos are effective, as well as additional advertising on furnished rental sites can also help.  Networking with friends and family can add that extra 5 to 10 weeks a year, which can conceivably push your property over the top from loss to profitability.

Like all real estate, vacation rentals are location driven.  Without major theme parks, beaches, golf courses, ski hills, etc what reason would someone have to visit your vacation home.  Prices for rentals can fluctuate wildly depending on proximity to the beach (walking distance versus ten minute drive).  Most clients will be renting cars, so parking is essential. 

Without basements, many times garages can be converted to extra rooms to house pool tables, foozeball or massive televisions.  These are all important items to make your property attractive and stand out from the competition.  If all the houses have a standard package and you can add a pool table to the package, it could be the option that sways potential renters.

One thing to remember with a vacation rental is target renters are likely to want your property at the same time as you would want to visit.  This can be a problem, as your beach front Florida property is only available for your usage in July through October, but you want to escape the cold winter, during a time of full occupancy.  It is important to clearly define your goals, are they income or usage?

Another idea is to purchase investment properties in your home area and use the income to renting a vacation homes.


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