1. Make sure short term rentals are allowed before you buy.
In 2016, a law was passed that prevents Arizona cities, towns, and counties from prohibiting short term and vacation rentals. However, HOA’s can still have restrictions in place. Before you buy your vacation home, make sure the HOA is not prohibiting short term or vacation rentals!
2. Add upgrades that motivate travelers to book
According to a survey conducted by Trip Advisor, when asked what amenities or features motivated travelers to book a vacation home, 4 out of the top 5 responses had to do with outdoor features (stunning views, private pool, outdoor grill, and hot tub).
Making some of these upgrades to a house can be expensive, but it is directly linked to motivating travelers to book your home. This will pay off in the long run with more high dollar bookings.
Don’t have the cash to make these upgrades? Klinkloans offers private money construction loans that will finance up to 75% of your costs that are being installed in the property. Point #5 in this article will tell you how you can finance construction AND get some of your cash out!
3. Plan for taxes and make sure you don’t miss any!
It’s important that you figure out what your taxes will be beforehand, There are occupancy taxes (hotel tax) that can range from 5 – 19% per night! This is in addition to a transaction privilege tax that is charged to businesses in Arizona. If you don’t plan for these taxes, it will eat into your profits more than you anticipated. Some booking agencies collect the taxes for you, others don’t. This varies by each rental marketplace and each location. Make sure you know beforehand who is responsible for collecting and paying these taxes! Do your research, and consult with a CPA so you can set your price accordingly.
Starting January 1, 2019, all online short term rental marketplaces such as VRBO and Airbnb will be required to register with the Arizona Department of Revenue and collect taxes on bookings.
4. Maximize your cash out using the Klinkloans Cash Out Mortgage Hack!
If you do a Klinkloans construction loan to make some of the upgrades mentioned in point #2, we can help you maximize your cash out of this property with the “Klinkloans Cash Out Mortgage Hack”.
This is a new and popular program Klinkloans is offering specifically for vacation rental properties. Once your upgrades/renovations are complete, you can start the refinance process (to get into a longer term, lower rate loan). Once the appraisal has been completed for the refinance, we will do a final cash out draw up to 80% of the appraised value (assuming the new loan terms are 80% LTV. We will go up to the LTV of the new loan being offered).
This allows you to get as much cash out of your investment as possible before doing a rate/term refinance. This extra cash could allow you to do the finishing touches on your home, recoup some of the money you have spent, or have money available for your next big investment!
For example: You buy a home for $250,000. You plan to put in $50,000 in renovations.
Normally we would lend up to 80% of your purchase ($200,000) and then 75% of your renovations ($37,500). This would give you a loan amount of $237,500.
When you do your refinance, say after the renovations, the property actually appraises for $350,000. We will lend up to 80% of this amount ($280,000). With an existing loan of $237,500, you can get one final draw of $42,500 to reach your $280,000 final loan amount which you will complete a rate/term refinance on.
So yes, you had to pay $50,000 for down payment, as well as $12,500 for renovations. But out of this $62,500, you will get $42,500 back in your pocket!
Higher rental income from vacation properties make the higher loan amount manageable. Then you can refinance into your longer term loan with a rate/term refinance, allowing you to get a more competitive rate than if you did a cash out transaction with your new lender.
5. Providing a great guest experience will maximize your profits
There are so many things that someone can and should do to help increase their bookings, from taking good pictures, to pricing well and adjusting prices seasonally, using the right listing platform, etc.
At the end of the day, ultimately what will help your investment be successful is consistent bookings. The way that you will get consistent bookings is by providing great value to your customers and a great guest experience. Leave them a welcome gift, be in touch with them at the beginning and the end, Go above and beyond to make sure that their stay is memorable and evokes positive emotions.
Beyond this, some platforms have incentives for hosts who go above and beyond for their guests (see the Airbnb “Superhost” Program).
The more memorable the stay for your guests, the more repeat bookings, positive reviews, and overall bookings you will get. This is what will ultimately make your vacation rental home a success.
What’s the best advice that you have for these types of investments?
We’d like to be YOUR private money lender. Schedule an appointment to talk with me!
Call, text, or email me if you want to learn more about real estate investment, or private money (hard money) loans. I would love to assist you.
Mike Zins (NMLS#183815)
Jean Klinkhamer (NMLS#1504656)
Klinkloans aims to help borrowers achieve their goals. We do this through fast, quality service, competitive pricing, and building long term relationships. A long term, reliable relationship with us gives borrower’s peace and enables them to invest time, money, and energy into other projects or other important areas of their lives.
Klinkloans Fund LLC is a part of the Private Lending Division of Stewardship Mortgage LLC Stewardship Mortgage LLC is an Equal Housing Opportunity Lender and a licensed Mortgage Broker MB#0909516 and Loan Originator NMLS#154011 in the state of Arizona. Stewardship Mortgage LLC is acting as a Loan Originating Agent and NOT a Principal.