Should You Purchase A Condo For VRBO Purposes?
If you've always wanted the financial security of a second stream of rental income, but hate the idea of dealing with long-term tenants (or evictions), vacation rentals may be the perfect choice. You'll be able to command high weekly or monthly rental rates without extending a long-term lease to any one specific person, and you can use your vacation rental as your family's own home for long trips during the off-season. However, purchasing a single-family home (SFH) in a popular vacation spot can be a pricey prospect, and you may not have enough cash to pay the required down payment on a property worth more than your home. Fortunately, many desirable tourist locations now have a number of condos for sale at substantially lower prices than freestanding homes. Read on to learn more about the advantages of purchasing a condo for use as a vacation rental, as well as some potential downsides you may want to consider before making this investment.
What are the advantages of using a condo for a VRBO property?
While SFHs can often command a premium on the rental market, there are some marked disadvantages for the busy homeowner. Just like the owner of a hotel or bed and breakfast, you'll have to clean your rental home from top to bottom and make any necessary repairs (or perform maintenance) before the next rental period can begin. Unless you live nearby and prefer to do this yourself, you'll need to hire a property manager to take care of this for you. In some cases, storm damage or neglected exterior maintenance can render your home unable to be rented until you can arrange for repairs to be made -- and if this happens during peak season, it can cost you thousands of dollars in lost rent or returned deposits.
On the other hand, condominiums are generally governed by a homeowners association (HOA) that collects annual dues from all condo owners and, in return, pays for exterior maintenance (like leaf removal, roof repair, and lawn mowing) for all condos and condo-owned parking areas. This can be ideal for long-distance landlords who aren't regularly able to assess the exterior condition of their rental homes, or those who are loath to perform such maintenance themselves, and can limit your cash outlay to a single cleaning service to refresh your condo after each renter leaves. (If a number of your condo neighbors also rent their units through a VRBO site, you may even be able to obtain a group discount on cleaning services.)
What should you know before putting in an offer on a condo you'd like to put into rental service?
Before taking the plunge on any specific unit, it's important to carefully read the HOA's governing document (usually termed the "declaration of covenants, conditions, and restrictions" or CCR) to determine whether vacation rental is even permitted. While few condo associations in high-tourism areas specifically prohibit condo rental, many will set forth a minimum percentage of owner-occupied units required at any given time. If the condo you're considering is in a building quickly approaching that threshold, you could find yourself later facing fines if you rent out your property. Seeking a condo in a building that caters to vacationers and has no restriction on condo rental should not only eliminate your risk of fines or penalties, but can give you a ready-made group of neighbor landlords with whom you can split services or discuss local real estate.
You'll also want to look at the rental vacancy rate in the building you're considering to ensure it's not too high. While being surrounded by vacant (and quiet) condos on your vacation may sound ideal, in reality a building that has few tenants can be a target for crime, and you may find you later have trouble renting out your own unit. A local real estate agent should be able to point you to the condo buildings with low to very low vacancy rates, ensuring that you'll have no difficulty securing market rates for your VRBO condo.
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