By Joan Talmadge

In recent years, renting a home (as opposed to staying at a hotel or inn) has become a very popular alternative for those on vacation. For families in particular, the comfort and convenience of vacationing in a "home," rather than in a more formal setting such as a hotel, can be very attractive.

Knowing this - and seeing the steady rise in rental prices that many popular vacation areas have experienced - many investors have chosen to make their properties available for rent, for some or all of the year.

It can be a profitable (and wonderful) experience, but keep in mind that there's more to it than simply collecting rent. Here are five suggestions for making it work:

1. Know your competition.

   As rental options and inventory grow, it becomes more and more important to know where you stand relative to the competition. Before setting a rate, ask yourself these important questions:

   • What are the rates for rentals with the same number of bedrooms and bathrooms and with similar amenities?
   • How close is the water? Proximity to water is usually top priority for vacationers, so homes within a half mile of the beach generally rent more easily and for more money than those farther away.
   • How large is the home? A four-plus bedroom home can sometimes fetch twice as much as a smaller home, particularly when an extended family or two families are splitting the cost.
   • How much of the year can you reasonably expect to rent the home? Peak season in most areas is nine to twelve weeks. Larger homes rent well in season but interest dwindles in the off-season.
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   In general, try to be competitive, but realistic, in setting your rates. Try to price your home at, or slightly below, what your analysis shows the market will bear.

2. Know your costs.

   Renting is a business venture, and there are expenses involved above and beyond what it would cost to live there yourself. These include fully outfitting it (everything from furniture to silverware), turnover cleaning, advertising, legal fees, insurance (it may be higher than you're used to if the property is near the water and more prone therefore, to hurricanes and floods) and others.

   Also, don't underestimate the maintenance costs. These are ongoing and can quickly eat into your profit, particularly if you intend to hire out such things as lawn care and cleaning. I recommend setting aside a sum of money every year for maintenance.

3. Run the numbers.

   It's all about cost against return. Barbara Sims, a successful landlord and the owner of five Cape Cod vacation homes says, "I try to cover my mortgage costs with the summer rentals. If the mortgage payments are $20,000 per year, I would like the rent to be about $2800 per week. That would give me only a small profit but at least cover the basic costs. I consider nine summer weeks as 'prime time,' with shoulder season and off-season weeks as extra."

   Make sure you know how it all adds up - or doesn't - before you commit to a property purchase.

4. Equip the home well.

   Today's vacationers expect all the comfort and convenience of a home, including a well-equipped kitchen, good mattresses, linens, air conditioning, cable tv, vcr/dvd, and high-speed Internet.

   And if it's not clean and in good repair, don't bother. Nothing turns off renters faster than mismatched dishes, old pots and pans, stained bedspreads and decrepit furniture. Light, bright, and modern homes are generally more popular with vacationers than older homes, and a nice deck or patio and family-friendly yard will seal the deal.

   As Barbara Sims says, "I need the WOW factor for all my houses. Something that says I love it here and want to stay forever! If I don't get that every time I walk into one of my properties, then my guests won't have it either."

5. Don't forget about marketing.

   Today, the Internet is the first place most people turn in planning a vacation. Many vacation rental websites provide an inexpensive and efficient means for helping potential renters find you. As a first step, put yourself in the shoes of the vacationer and Google "(your town or city) vacation rentals." See which vacation rental websites come up, and list your home on one or more of them (it's hard to do it completely on your own, and I strongly recommend working with an established rental site).

   Plan on creating a web page for the property so that you can showcase it and help it stand out from the rest. This includes a well-thought out description highlighting the best features of your home and excellent pictures - both interior and exterior. Many vacationers are coming from a distance and will be renting a home based on what they see on their computer screen. You will want to portray your home in its best light (but always be accurate and forthright). In summary, you want your tenants to walk into your home and say, "Wow! This is even nicer than I thought it would be!"

   And by the way, even if you decide to go with a rental agency or property management company, you may still want to do some independent advertising on your own.

In short, renting a property is an excellent way to build equity and generate positive cash flow, and an approach to real estate investing that I highly recommend. With a few basics, and a commitment to putting in the time and effort required (especially at the beginning), you'll be well on your way to building your portfolio.

Joan Talmadge co-owns the website WeNeedaVacation.com with her husband, Jeff. Their website is the largest website for Cape Cod, Martha's Vineyard, and Nantucket vacation rentals and advertises Florida rentals as well.

« 4 Things You Should Know About Credit

July 2006

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