Ask a Realtor: What’s the best strategy for buying a second home to rent?
On Real Estate
Dear Mike: I am looking to buy a second home in the Vail Valley and considering renting it out either on Airbnb or using a vacation management company. What might make more sense for me being an out-of-market owner who also wants to use the home or condo?
Also wondering what type of property, including the number of rooms, might be my best investment, and any other criteria that might make it more marketable to people wanting to visit and vacation in the Vail Valley.
— Looking to Buy and Rent
Dear Looking to Buy and Rent: The decision to buy a second home is generally focused on lifestyle and owning a property in the Vail Valley brings a multitude of rewards. Expanding the decision to look for short term rental revenue along with your lifestyle interests opens up a number of other considerations, one of which being cost and the return on investment you wish to achieve.
To accomplish this, I would suggest the following three-step process:
Meet with your financial advisor or accountant to discuss your plans. These discussions should include a review of tax ramifications relative to owning the property and how best to handle revenue/expenses, including a review of state and local taxes.
Another question to ask is how to title the property to best achieve your established goals, i.e. Trust, LLC, etc. If you will be financing a purchase, I would also recommend meeting with several potential lenders to understand the parameters of a loan, which will help in the search and buying process.
Upon completion of these discussions, this is a good place to engage a real estate agent. A knowledgeable, licensed real estate professional can be instrumental in helping you navigate the search process, particularly when demand is surpassing inventory. An important component of this relationship is to meet and discuss the goals you have established and develop a strategy for finding the right property and fits your budget, including size and number of rooms. This should also include your interest with regard to rental and personal use of the property.
Your real estate advisor can then help direct you to properties that allow short-term rentals per their covenants. This is extremely important as buildings or developments that preclude this type of rental shouldn’t be part of the search.
Once an area and property type have been selected, all the preceding established goals kick in to make an offer. Be sure to have your broker look into any rental history on the property as part of the diligence period. This should also include a review of the municipality regulations on business licenses, sales tax collection etc. Your advisor can point you in the right direction to procure the information.
During the diligence period, I highly recommend you have your Broker recommend some professional management companies for you to meet. They can do a projection on rental rates with special emphasis on key periods. They can also provide the service of collecting funds, deposits, check-in and check-out, cleaning, and overall property maintenance. As an absentee owner, the service provides another layer of protection for your property and can keep you apprised of the constant evolution for short term rentals.
This process may seem to complicate the acquisition of your property but the plan of using it as an investment/lifestyle property requires more diligence as different liabilities may arise. If you and your real estate advisor have done the diligence and developed the strategy to achieve your goals, you will be well on the way to a successful transaction and best able to enjoy all the benefits of owning a second home in the Vail Valley.
Mike Budd is a 19-year Berkshire Hathaway HomeServices Colorado Properties veteran, specializing in residential and commercial real estate, including being named Vail Board REALTOR of the Year in 2016. A Vail Valley resident for 21 years, Budd has seen the Vail Valley evolve into one of the most desirable resort/lifestyle communities in the world. Contact Budd with your real estate questions at email@example.com, 970-376-4511 or http://www.mikebudd.com.