Buying a vacation home can be a smart investment — if you know how to pick out the right one.
We sat down with Scott McGillivray, real estate expert and star of HGTV's "Income Property," to hear his advice for vacation home buyers who want to earn a little extra cash by renting out their new place when they aren't around.
Here's how to spot a property that will generate some additional income and provide you with a place you can enjoy for years.
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Use a financial equation to figure out whether your new place is worth it.
If you want to know whether a vacation home is worth its price, there's one equation you should follow.
Look at the total monthly costs of the property — including the price of rent, utilities, renovations, mortgage, and taxes — and see if you can make what you'd spend on a month by renting the property for a week.
If you're able to make enough to cover the month's costs by renting for a single week, you're in a good place.
There are typically 12 weeks in the high renting season, so you want to ensure that you're making enough in the high periods to make up for the low ones.
Keep distance in mind.
Where a vacation home is located will also affect how much you can charge for rent.
McGillivray recommends purchasing your first vacation home in a location that is between two and two-and-a-half hours away from where you live, so you can be close enough to access it regularly.
You also want to ensure that the property is at least a few hours from an urban center so that those renting the property can have easy access to various amenities.
Consider destinations that have year-round appeal.
According to McGillivray, some destinations tend to stay popular for longer periods of time, usually because they have warm weather, lower prices, and close proximity to water.
For these reasons, McGillivray finds that destinations like Florida and Arizona are often the most popular.
Finally, the direction a home faces — whether it is turned towards or away from the sun — can also affect its pricing, depending on the renters' preferences.
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