This article was originally published in The Galveston County Daily News on 5/11 as part of my weekly 2019 column.
Many of us in Galveston and along the Gulf Coast choose to have second homes and other investment property as well. Maybe our Gulf Coast homes are our second homes and our goal is to live virtually free when we're in town. Thus, the increasing numbers of short-term rentals.
What are the features to make short-term rentals appealing?
Income, of course. Ideally, at a minimum, to pay for the taxes and insurance, and maybe bring in some cash. And then when there is a limited amount of real estate in an area such as ours, there is also a pretty good chance for appreciation in value. So, there is investment growth as well. And then, the property has a dual use: it can also give you a cool place to stay from time to time if you live off-island, or as I call it, in “America.”
With the proliferation of both major corporations as well as small local organizations, a vacation rental can be fairly easy to manage. You can book the use yourself, or hire someone to handle the entire operation--from booking through cleaning and restocking. I have clients who handle everything but the actual cleaning from their homes or even while cruising the Caribbean. Many of the management companies can help you figure out what sort of income you can expect from a well-managed property.
Galveston has a very active rental organization called STROAG, the Short Term Rental Owners Association of Galveston. Since their inception, they've been an active voice in both the community as well as at the state level. Their efforts lead to Galveston having one of the strongest vacation rental ordinances in the state.
What are the downsides of a vacation rental? The income can surely be variable. Bad weather can mean fewer folks visiting town. And then regardless of your bookings, you still have to maintain the property, keep the utilities and internet on, pay property taxes, and keep yourself and the property insured. And there is also marketing to consider. And, if you live off-island, how often will you be able to use your own house? Are you able to take the time off to visit?
Having a rental property can be a good investment. It can appreciate in value while the income that you receive can cover most or all the mortgage. Of course, paying cash is the ideal: then “all” you have to cover is taxes and insurance.
Of course, it's not just passive income. Even relying on one of the many management companies, you will still need to ensure that the work is getting done and the bills are being paid.
You also need to be sure the investment property you've chosen has set you up for success. There are lots of mistakes to avoid. With that in mind: three things to consider before becoming a vacation rental investor.
Do you have everything you need now—personally and professionally? Are you paying your bills easily? Do you have enough cash for emergencies, insurance, and retirement?
If not, now is not the time to purchase a rental property. You can't buy and count on the renters to arrive on a regular basis and keep you afloat. You should invest from strength, not desperation. Perhaps it would be smarter to invest in a duplex and live in one unit. Take a hard look at your personal finances before making the leap. If you can easily afford the insurance, taxes, utilities, repairs, and management fees, then purchasing a second home or vacation rental might be a good idea.