Bankrate.com Vacation homes: Not just for the rich and famous Thursday June 2, 6:00 am ET Teri Cettina It may hit you every year about this time as you schedule your annual family trip to the coast or other favorite vacation spot. "Wouldn't it be great if we owned our own beach home (or condo or ski chalet)? Instead of paying rent to someone else, we'd be paying ourselves." Then you sigh, write out a deposit check and envy those wealthy tycoons who can afford to own vacation homes. Boston-area resident Paul Boulanger would challenge you to think again. This self-described "old-fashioned tightwad" saved money for years and now owns a time share in The Bahamas, a vacation condo in Florida and a traditional saltbox home on a secluded peninsula in Maine. He's not fond of mortgages, so Boulanger scrimped and paid cash for the properties. And because he rents out and maintains his rentals directly, rather than paying exorbitant fees to a propertymanagement company, Boulanger is making good money with this less-than-part-time venture. (His "real" job is with a printing company.) In fact, Boulanger says he needs to rent out his Maine home for less than eight weeks each year to cover the property's annual expenses. Any additional rental weeks -- and he gets a lot of them -are pure profit. Buying homes for love and profit Boulanger is very happy that his rentals make money, but that wasn't the sole reason he bought them. "I bought homes in places I personally love -- places I like to visit every year -- with the idea that they might even become my retirement homes," he says. "Renting them out was simply a way to make them affordable."
Christine Karpinksi, author of "How to Rent Vacation Properties By Owner," says she teaches seminars around the country "to help regular people learn how to buy and rent out their own vacation homes in places they love." She's more interested in long-term investments than in showing people how to buy cheap properties, fix them up and sell them quickly. The 17-week formula How do you know if you can afford a vacation home -- even with the help of renters? Karpinksi has developed a simple profitability formula. She estimates that one peak-week rental fee should be enough -- and hopefully more than enough -- to pay the home's monthly mortgage if you finance your purchase. For example, if you borrow $300,000 at 5.5 percent for 30 years on your beach cottage, your monthly house payment would be $1,703.36. That should be your minimum weekly peak-rate rental fee, Karpi nski advises. If you don't think you can charge that much for rent, don't buy, she says. However, if you can be reasonably sure of renting your home for at least 17 weeks a year, you should break even. Most owners can count on 12 peak rental weeks each year. Those 12 weeks
each year should pay the annual mortgage. Five additional weeks of non-peak rental income usually enable owners to cover taxes, cleaning and maintenance expenses, and other incidentals. Eliminating the middleman The crucial key to the vacation home dream, says Karpinski, is to manage the properties yourself, rather than give anywhere from 40 percent to 60 percent of the rental profits to a propertymanagement middleman. Karpinski says managing your own rentals is much easier and less time-consuming than most people might think. She encourages homeowners to start by listing their vacation homes using online services such as CyberRentals.com, Vacation Rentals.com and Vacation Rentals By Owner. Sites such as these typically charge flat fees to advertise the properties and can help you reach hundreds of thousands of potential renters. CyberRentals, which currently lists some 10,000 vacation properties throughout the world, charges as little as $60 for a three-month listing -- about the same price some owners would pay for a single day's ad in the classified section of a major newspaper. Listings include a generous text description and four photos of the property. Owners can opt to include more photos for a slightly higher fee. They also can choose to have renters contact them directly by phone or e-mail. Cherry-pick your renters A major advantage of online listings is that the homeowner maintains control of who stays in their home. "What holds many people back from buying and renting out their own vacation home -- what they most fear -- is that a bad renter will trash the place," says Karpinski. "That rarely happens, especially when you screen potential renters yourself rather than going through an agent." Karpinski and Boulanger both get most of their initial rental inquiries by e-mail. However, they never actually rent out a home until they've talked with the person by phone. "I can read people pretty well, even over the phone, so I know who I'll let into my homes," says Boulanger. He also has been fortunate to develop a group of renters who occupy his properties every year, without fail, and who have almost become personal friends. Getting the green Boulanger and Karpinski both eliminate potential payment conflicts by requiring renters to send them at least half of the total rental fee to hold a reservation (especially during peak season) and requiring the balance of the fee two to three weeks before the renters arrive. Both owners require security d eposits to ensure against damage. They also have detailed lists of rental requirements regarding smoking, pets, cleaning arrangements, etc. Other tips for successfully renting your own vacation properties: Do your homework. If you're buying a vacation home that has been a rental in the past, your real estate agent should be able to provide details on how often the home was rented and at what price. Research your destination town thoroughly for details such as average household income, crime rates and more.
Be proactive about maintenance. Smart owners are even more vigilant about taking care of their rentals than their primary residences, since so many different people are using the homes. Also, even small, unexpected problems can eat into their income streams. Try to find a local handyman to check the property periodically. Develop a home-cleaning plan. There's no single way to do it. You can make renters responsible for cleaning or even for bringing their own linens. Or, you can hire local cleaning services or independent agents. Housekeepers also can help by letting in service people to do repairs and by occasionally delivering extra keys to renters who misplace theirs. Know your local resources. Keep a copy of the phone book from your vacation town with you at all times. That way, you can easily call a plumber if your rental home's septic system fails or reach an electrician if the house blows a fuse. It's also smart to check out qualified local repair people in advance so you can call them at a moment's notice. Stay abreast of required taxes. Even if your state or locale doesn't have a sales tax, it may have a lodging or "bed" tax. Karpinski warns that tax departments proactively look for new owners who are not paying taxes and can send you a big bill if you're not paying attention. Small children and pets? Whether you allow them is up to you, but be aware of the revenue you'll lose if you don't. Karpinski finds that families with young children are actually her best renters; she rarely finds a crayon-scribbled wall or broken window, and the families rarely stay up all night partying! Whether to allow pets is a complex question, since some people have serious allergies. It's common to charge a slightly higher fee if you do accept furry friends, since you may need to clean the carpet or repair upholstery. Whatever you decide, be upfront in your rental listing. A picture is worth a thousand words. Provide as many photos of the property as you can -- inside, outside and room-by-room. Photos eliminate a lot of guesswork and repetitive questions, such as "Do you have a TV/coffeemaker/fireplace?" Jeff Smith of CyberRentals says properties with good photos seem to rent much more quickly. Respond quickly to potential renters. Smith says renters often complain that owners don't return their phone calls or e-mails quickly enough. "Remember that a new renter may have narrowed their vacation home choice down to three or four properties they like. If you're the first owner to return their call or e-mail, you're going to be way ahead of the game," he says. Consider helpful tools like lockboxes and call blockers. While Boulanger simply mails keys to each renter, Karpinski prefers to maintain lockboxes at each home. Renters get the secret code to the boxes when they've paid their fees in full. And if you're concerned about chatty renters who might call family and friends in Outer Timbuktu, talk to your phone company about blocking long-distance calls on your rental home's phone line. Many renters have cell phones or bring long-distance calling cards anyway. "I tell people all the time: You really can have a vacation home, even if you think you can't," says Karpinski. "It's definitely not an impossible dream."