How To Know When to Sell Your Vacation Home

How To Know When to Sell Your Vacation Home

When the COVID-19 pandemic hit last year, the real estate sector suffered in general as the economy almost ground to a halt. Due to many cancellations, vacation homeowners saw their revenue from short-term rentals slowly reduce and, in some cases, stopped altogether. 

According to a survey, 88% of homeowners rely on revenue from short-term rentals. 55% of these homeowners were temporarily out of business by June 2020. The dwindling income had a direct effect on the increasing foreclosures in vacation rentals. 

How to Know When to Sell Your Vacation Property

As the economy slowly regains its footing, many vacation homeowners consider selling their properties due to financial strain. Before you sell, a property assessment will provide you with additional information about your home so that selling it doesn’t come with surprises. Information such as how much the house is worth, what taxes will be due on the sale, and whether any special permits are necessary to sell can make for a more comfortable transition for both the seller and the new owner.

Some signs that let you know it’s time to sell your short-term rental include…

The Property Has Reached the End of Its Life Cycle

Properties go through life cycles depending on factors such as frequency of use, property age, and current market conditions. The life-cycle is a major determinant factor for most homeowners. In general, this point comes between five and ten years of purchasing the property.

The Revenue Coming In Is Not Enough to Cover Expenses

If you note that the income from your rental property is not adequate to maintain it, the property has become a negative income property. At this point, selling may be a good idea. Otherwise, you’ll spend more than you are gaining. To help you determine how much income you’re generating, you need to calculate the capitalization rate or “cap rate.”

To calculate the cap rate, consider the net income you expect the property to bring in. Deduct the expenses from the income, then divide the overall operating income by the purchase value of the asset. With this percentage, you’re able to estimate the Return on Investment (ROI) you’ll get on the current market.

A low cap rate is a definite sign indicating you need to get out of your vacation property.

Favorable Market

The market prices for vacation rentals after COVID are now on the rise. To get a reasonable price on your vacation property, you need to be aware of market changes. If your goal is to gain significant profit margins, this is a major sign you shouldn’t ignore.

You’re Anticipating Major Repairs

When deciding to sell, it’s essential to consider the state of your property. If your vacation rental needs significant repairs such as roof replacement or upgrading the kitchen, you can expect to be spending some serious money. Instead, it can be a better choice to disclose and transfer the renovation costs to the eventual buyer.

You Have Limited Time or Resources to Maintain the Property

Vacation homeowners often decide to sell for reasons such as moving to a different location from which they would be unable to take care of the property themselves. In such cases, searching for a home buyer is a reasonable alternative to outsourcing management.

New Legal Regulations That Limit Your Income

Some regulations set by the state, federal government, or Homeowner Association (HOA) can affect your business as a vacation homeowner. Some local authorities enforce laws to discourage the establishment of short-term rental homes. Such legalities can decrease the profits or make it difficult to operate your business legally. If you find yourself in this position, it’s likely a time to let go of your property.

How to Strategize Getting Out of a Vacation Property

Having a plan is the first step to a successful sale. Here is what you should consider when deciding to sell.

  • Select a good time to list your vacation property based on trends in the local area (talk with a real estate agent to help assess this).
  • Due to the current travel restrictions, you should consider the reduced number of bookings. Set a price that’s favorable to you without discouraging potential buyers.
  • Select a real estate agent who has experience with short terms rentals.
  • Research your target customers when looking for buyers to help you with marketing strategies.
  • Understand the taxes that are due on the vacation property.
  • Clean up and stage your property, including landscaping and painting.

 

Sources:

www.financialsamurai.com/reasons-why-you-should-not-buy-a-vacation-property

www.investopedia.com/terms/c/capitalizationrate.asp

www.uit.stanford.edu/organization/propertymgt/lifecycle#:~:text=The%20life%20cycle%20of%20property,%2C%E2%80%9D%20and%20%E2%80%9CExcess.%E2%80%9D

www.newhomesource.com/learn/selling-vacation-home

www.tidewatermortgage.com/news_blog/how-selling-a-vacation-home-is-different

www.homelight.com/blog/selling-vacation-rental-property

www.zillow.com/sellers-guide/selling-a-vacation-home