The “Buy-and-Rent” Strategy: How to Make It Work for You



Would an extra $35,000 a year in income influence your decision to purchase a second home?

Let’s say you have come to the conclusion that there is absolutely no way you could afford a second home at this time in your life. Now, step back and put yourself in a traveler’s shoes. Would you rent this place, say for $250 a night, which is the average cost of a hotel room in the area? OK, that’s $1,750 a week. And, with the help of marketing available through vacation rental websites like HomeAway.com and VRBO.com, second home owners are renting their home out for an average of 20 weeks each year.

The fact is buyers often need renters to help offset their costs particularly in the first few years of ownership. Not only can renters help you get in the door now, but they can also provide steady income for you down the road – perhaps to travel in retirement.

It’s important to remember that it is easier to rent out your place than you think. While you probably have friends that are interested in renting your vacation home, keep in mind that there’s a nearly unlimited pool of people looking to stay in a vacation rental. In fact, more than 85 million travelers visit HomeAway.com each year to look for a vacation home for their next trip.

Christine Karpinski, who is Director of the Owner Community on HomeAway and author of “How to Rent Vacation Properties By Owner,” developed one of the best rule-of-thumb formulas to calculate the break-even point for a vacation rental home. Here’s the formula that can help you determine the feasibility of buying a second home and renting it out:

If your monthly mortgage payment is equal to or less than one peak week rental rate,
and if you rent for 17 weeks, then you should be able to achieve positive cash flow
.

Furthermore, a 12-month listing costs $329 – or less than $28 per month – on HomeAway, so the advertising pays for itself with your first booking – and the rest is pure rental income.

Remember, you don’t have to consider your second home exclusively for personal use. That’s the view most second-home buyers initially take, but times have changed because of the public’s quest for a variety of travel experiences and, because of the recession, a focus on value.

You don’t have to be “tied down” to a second home and feel like it’s the only place you can spend your time. You would be surprised at the number of people who would welcome the chance to rent it while you are elsewhere in the world.

For more information on buying a second home and effective strategies for maximizing rental income, check out HomeAway’s online community for vacation rental owners at ownercommunity.homeaway.com.