So you’ve thought about investing in real estate, but you’re not quite sure where to start? Everyone who has walked the path before you has been right there, too. Investing your money, time, and resources into the unknown can be intimidating but working with a seasoned professional can help to provide confidence and clarity around the process – and ultimately your decision.
Some of the benefits of owning a vacation rental include:
- Residual passive income that can be used to supplement retirement income
- Potential Equity Increases
- Personal use of the property which can save on hotel and lodging expenses (Limited by IRS)
- Differing tax benefits like writing off depreciation (consult your tax attorney)
So it sounds pretty good so far… well what’s the catch…?
Before you get into real estate investing you need to have some cash saved. The amount necessary will depend on the size of the property you want to purchase and overall budget. You will also want to factor in cash that may be needed for larger repairs to the property like a new roof or HVAC system. You may also need cash or other financing options if the property doesn’t come already furnished. Many vacation properties are sold furnished, but some are not and this requires a lot more cash and time on the upfront to order, assemble, and decorate.
Bringing a sizable amount of cash to the transaction requires a certain level of financial success to have already occurred. Incorporating real estate into your overall financial plan is something that should be discussed with your financial advisor. Real estate investing may or may not be right for you right now depending on your goals, current plan, and cash flow. It’s important to know the numbers and discuss the risks and benefits with your advisor to make an informed decision.
If you have never owned a vacation property before you may want to work with a professional management company. Many first time investors prefer to partner with a professional before they undergo self management- but self management it is an option that can save on overhead expenses. In the rental world there is a range of fees that these management companies can charge: anywhere from 10-40% is standard. Choosing the right company and negotiating a good contract from the beginning can be the difference between profitability and big losses.
These are just a few of the items you will want to consider before taking the next steps forward. There is so much more we could not cover in this first article but be on the lookout for future blog posts that will expand on this topic.
If you are ready to take the next steps today, please contact me for a consultation.