If you’re in the market for a vacation rental property and you’re considering investing in a fixer-upper, there are several pros and cons to consider. After all, it’s not called a fixer-upper for nothing. There are essential considerations for time and budget that may not be apparent at first when you’re looking for a fixer-upper vacation rental property.
They often feature lower sale prices
Newer real estate investors may find fixer-upper properties especially attractive because they have a lower budget and list prices are often significantly lower. Following the inspection report, there may be even more wiggle room for price negotiation. However, due diligence is critical when you’re investing in fixer-uppers. Consider whether the money you save on purchase price will be cancelled out by the repairs, remodeling and other home improvements you have in mind. Is it a trade off you’re willing to make?
The gift of lower property taxes
As you likely know, property taxes are partially assessed using a property’s value. The value also takes sale prices of comparable homes into account. So, if your vacation property’s sale price is much lower because it’s in dire need of renovations, your property taxes may be lower too, at least for a while.
Depending on your state and local market, the frequency at which property value is assessed for tax purposes will vary. In most states, property value for tax purposes is assessed every five to seven years. That being said, property taxes are also assessed right after the sale of a property, which can benefit you as the owner of a fixer-upper, since your assessment will likely occur before you complete your repairs and improvements.
Upgrades can bring in more rental income
You should carefully consider how much “fixing up” you want to do if you plan on using the property as a vacation rental. Depending on your market, certain renovations can bring in more rental income; others, typically, do not. It’s always a good idea to consult with professionals to leverage vacation rental industry insights before you look into a fixer-upper project.
Good work takes time
When you’re investing in a fixer-upper, you’ll likely have to work closely with contractors. It’s important to cautiously evaluate your current life situation— the demands of your day job, family, etc. — and be honest about how much time you’ll dedicate to making this property ready. Even if you outsource the work to professionals, it still takes a herculean effort to hire, schedule, and manage contractors.
Renovating a property involves a detailed process that can take months. Depending on your personal availability, your contract teams’ availability and even seasonality, your property improvements could easily cut into months, which would be viable for earning vacation rental income instead. Remember, every day your property is under construction is one more day you can’t earn income from rental guests.
Rising renovation costs
It’s not uncommon for buyers to put large amounts of cash into renovations— so it’s important to keep an eye on your budget. One method for managing costs is to strategically space out your vacation rental improvements, although, this isn’t always possible in a quickly evolving market.
There are numerous unique advantages to purchasing a property as a short-term vacation rental. Instead of a fixed monthly paycheck from a long-term renter, a short-term rental property has the potential to double or triple the amount of collected rent. However, it’s important to remember that increased cash flow also attracts increased expenses.
A savvy real estate investor should carefully consider if a short-term rental is something they can handle and do their due diligence on exactly what kind of time, effort, and price they would need to commit to have a highly profitable short-term rental listing.
RCN Capital: Short-Term Vacation Rental Loans
Put RCN Capital’s financing to work for your next short-term vacation rental. RCN offers 30-year loans with rates starting at 3.49% for short-term rental properties. Whether you are trying to purchase the vacation property of everyone’s dreams or are looking for better terms for an existing vacation rental, RCN has you covered. Reach out to RCN Capital to discuss our short-term rental financing options!