Ask a Realtor: What goes into purchasing a rental property in the mountains?

Dear Mike,

I am looking to buy a second home in the Vail Valley and considering renting it out either on Airbnb or using a vacation management company. What might make more sense for me being an out-of-market owner who also wants to use the home or condo?  

Also wondering what type of property, including number of rooms, might be the best investment, and if there’s any other criteria that might make it more marketable to people wanting to visit and vacation in the Vail Valley. 

Thanks,

Looking to Buy and Rent

Dear Looking to Buy and Rent,

The decision to buy a second home is generally focused on lifestyle and owning a property in the Vail Valley brings a multitude of rewards.  Expanding the decision to look for short-term rental revenue, along with your lifestyle, opens several other considerations, one of which is cost and the return on investment you wish to achieve.

To accomplish this, I would suggest the following three step process:

Step No. 1: Meet with your financial advisor or accountant to discuss your plans. These discussions should include a review of tax ramifications relative to owning property and how best to handle revenue/expenses, including review of SALT Caps (state and local taxes).

Step No. 2: Another question to ask is: How to title the property to best achieve your established goals (i.e. Trust, LLC, etc.)? If you will be financing a purchase, I would also recommend meeting with several potential lenders to understand the parameters of a loan, which will help in the search and buying process.

Step No. 3: Upon completion of these discussions, this is a good place to engage a realtor.  A knowledgeable, licensed real estate professional can be instrumental in helping you navigate the search process, particularly when demand is surpassing inventory.  An important component of this relationship is to meet and discuss the goals you have established and develop a strategy for finding the right property that fits your budget. This should also include your interest regarding rental and personal use of the property.

Your real estate advisor can then help direct you to properties that allow short-term rentals per their covenants.  This is extremely important as buildings or developments that preclude this type of rental shouldn’t be part of the search.

Once an area and property type have been selected, all the previously established goals kick in when you make an offer. Be sure to have your broker evaluate any rental history on the property as part of the diligence period.  This should also include a review of the municipality regulations on business licenses, sales tax collection, etc.   Your advisor can point you in the right direction to procure the information.

During the diligence period, I highly recommend you have your broker recommend some professional management companies for you to meet.  They can do a projection on rental rates with special emphasis on key periods.  They can also provide the service of collecting funds, deposits, check in and check out, cleaning and overall property maintenance. As an absentee owner, the service provides another layer of protection for your property and can keep you apprised of the constant evolution for short term rentals.

This process may seem to complicate the acquisition of your property, but the plan of using it as an investment/lifestyle property requires more diligence as different liabilities may arise.  If you and your real estate advisor have done the diligence and developed the strategy to achieve your goals,  you will be well on the way to a successful transaction and be able to enjoy all the benefits of owning a second home in the Vail Valley.

Good luck,

Mike