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What considerations are there for buying a 2nd home to rent out to vacationers?

My parents, my husband and I are looking to purchase a home in Florida to use on occasion and rent out for the weeks we are not there.  What special considerations must be made when doing something like this?
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December 10 2013 - Kissimmee
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Answers (5)

If you are buying a single family residence, make sure you check what flood zone the home is in.  You will need to get quotes on flood insurance, homeowner's insurance, and if you are in Florida, you will probably need some sort of hurricane/wind insurance as well.  
If you are buying a condo, verify what the monthly HOA cost is and what those fees cover (flood insurance, groundskeeping, maintenance, pool maintenance, Hazard insurance???).  You need to know how financially stable the HOA is as well.  Get a Budget and yearly P&L sheets for the past two years.
Some condo associations have on-site management companies for absentee owners that want to rent out their condo when they aren't there.  Ask what the fee is for this service and see if it makes sense for you.  Ask them for a comparable units rental profit statement so you can see what you would expect to make on the property.  You can manage it yourself, through sites like www.vrbo.com, but you would need to live locally to clean it and maintain it.  Let me know if you have any more specific questions about this.
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December 12 2013
Some considerations you should have in mind is the financing part of this transaction. Vacation, investment, and second properties are treated differently than primary home properties when it comes to lending. Since this will be your second property it is riskier for a lender to give you a loan. In order to balance out that risk, a lender will require a higher down payment and rates. So be prepared for higher rates and a down payment that can be 20% or more. Either way, the best thing for you to do is to speak with a lender directly to see if you can get started on financing with your situation. There are lenders like myself that would be glad to speak with you to help you get the loan that you need. Well I hope this helps! If you have any further questions or if you would like a loan, feel free to contact me.

Good Luck!
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December 12 2013
First you need to know how you want to buy the home. I assume it will be a single family home. Do you want to buy cash or need financing? Are you a in town owner or out of town?  If the home is situated in an HOA community are rental allowed. If yes what are the rental periods. Some allow only rentals for 365 days other allow only 2 rental....etc. Do you want to handle the property on your own or want to do it with a management company. Do you have trusted companies who will clean after each rental period, fix if something is broken, lawn service... 

Hope this small information helps you to get a better idea where to start.

Annett T. Block
Florida Connects Inc.

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December 11 2013
The "on occasion" aspect of the equation is of interest to me. If you rent out a home one month a year, and then manage the property for 11 months, then I would imagine that renting a home may be preferable. Also, would the times that you would be staying be the periods when tenants prefer to rent?

Another part of the equation is how many years would you be doing this? If you can visualize yourself going to the same place year in and year out then the purchasing option may be a good one. But some people find that the same place lacks it's charm after awhile. Obviously this depends on the home you purchase.

How far away are you from the property? Will traveling back and forth to make repairs make sense or would you be hiring an expensive management company?

Do both you and your husband have the time to manage the property? Will such an ownership cause friction because one of you who is doing most of the work? This can happen!

The rental market is an important consideration as well as the cash flow. Will this home be a good investment given the amount of time and energy you have to put into it?

Don't mean to burst your bubble here, just want to help you with the variables to consider.

Good luck!
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December 10 2013
First and foremost you need to know that if you use it as a short term rental there is a lot of overhead that goes along with running it, even if you have a property manager. The will be charges for the property manager, cleaning fees after each booking, the utilities will be paid by you since there isn't a tenant, etc. You get the picture.

If you buy the home with cash you will likely break even each year or maybe make a little. If you buy it using financing I would plan to lose money on it each year. It's a pay to play kind of thing. I have sold many short term rental homes and given the same advice to all my previous customers. If you are ok with that going into the sale then things should be fine. Just make sure you do your homework and work with an experienced agent who knows the community. Many communities in Davenport and Kissimmee allow short term rentals, however just as many do not and you need to know the difference. An agent can be helpful with that part. Best of luck to you. If you have any follow on questions don't hesitate to ask me.

Nathan Tutas
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December 10 2013
 
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