What to expect when buying a vacation home
By: Riaterra Marketing Team
Tags: Real Estate, Vacation Rental, Real Estate Investments

12 steps to buying a vacation home with RIATERRA

To make it easier for potential homeowners to make their next purchase we have laid out the basic steps to buying a vacation home. At RIATERRA we want to make home purchasing transparent so every home buyer feels confident in their investment decisions.

(And if you’re still weighing whether to move forward with the purchase, read our top four reasons why you should buy a vacation home.)

Step 1: Search for vacation home real estate

The key factors that must be considered when buying a vacation home is the revenue potential along with how it will fit your personal needs. Location is a major component of this. Your home should be in a popular area that also is attractive to you as a home buyer, but also to potential guests to ensure your source of revenue.

Step 2: Get pre-approved for buying a vacation home

A pre-approval really is a key element to have when buying your next property. It allows you to be prepared when searching for homes and in hot markets, lets you quickly close a deal. Your pre-approval also appeals to sellers as they can assure that you are a trustworthy buyer. With a pre-approved loan, you will have a 90-day window for a locked-in rate given to you by the lender.

Here’s a list of items needed for pre-approval when buying a vacation home:

Proof of income

Verification of employment

Proof of assets

Credit check

Identification (Social Security number, driver’s license, and proof of current address)

When you’re buying a vacation home, different lenders may pre-approve you for different amounts or at different rates. If you have rented homes in the past, this may be a useful piece of information as lenders are beginning to factor in historic rental income in their products.

Step 3: Forecast your revenue potential and returns on the vacation property

It is important to crunch the numbers and calculate your estimated income on your potential property. As your home search narrows, you want to approximate your return on investment and find a number that appeals to you. Let RIATERRA connect you with real estate experts in your area. We have in-depth reports of different markets and analysis of monthly cash flow, operating expenses, and net operating income on a variety of properties in different locations.

The factors that must be considered when analyzing short-term rental data includes location, square footage, bedrooms, bathrooms, HOA fees, property taxes, and other amenities. You may find yourself more attracted to a specific type of property or a core location depending on how different the numbers are.

Step 4: Find “The One” and make your offer

Here’s what typically happens next:

Prepare and make an offer committing to a purchase price. Define the terms and conditions for honoring that price in your offer. Set a closing date. Submit your earnest money as a bank check. Review the seller disclosure documents.

(Sellers are required to disclose certain facts about the property in writing.)

Your agent can write your conditions to help protect your earnest money in the event your home inspection is unsatisfactory or conditions are not met.

Step 5: Negotiate the sale

Negotiations continue until both you and the seller reach a consensus, or until you decide to walk away in the event that certain terms are not agreed upon. An agent with expertise in the market can be a huge advantage when dealing with the negotiation stage. Their insight into the local markets and experience handling the sale process will help make the transaction occur smoothly.

Step 6: Mutually agree on terms

Once both parties have agreed on the terms, you have reached a mutual agreement. This agreement determines your purchase price and is a major step in the vacation home buying process.

Step 7: Formally apply for vacation home financing

To finance your newly purchased vacation home, your agent communicates the mutual agreement to your lender. You must now complete your full loan application, and your lender can start the underwriting process.

If you plan to pay in cash, you’ll need to make sure your funds are liquid and secure. You can start planning to deliver a cashier’s check once the final steps in the vacation home sale process are fulfilled.

Step 8: Get a home inspection and resolve negotiations

When purchasing a vacation home to use as a rental, many markets will require your home to be inspected; plus, it will provide valuable information regarding the condition of the home during a sale. Some sellers will conduct a pre-inspection, but having your own inspection conducted is important as well.

The results of an inspection can help you renegotiate the property’s price, given any repair costs you’d assume after the close. You can request that the seller make concessions to address those repairs. Keep in mind that inspection results, and resulting seller concessions, can make or break your vacation home real estate deal.

Tip: If the seller agrees to complete repairs, you or your agent will want to walk through the property to make sure the work was completed to expectations. Be sure to work with your agent and the seller to set that condition.

Step 9: Get a home appraisal

If you are financing your purchase, lenders want to ensure the vacation rental you intend to buy is worth at least as much as what they agree to lend you. A cash deal, however, does not require an appraisal.

Your appraisal can protect you from overpaying for vacation home real estate. Depending on the results of the appraisal, you may be able to renegotiate or walk away from the purchase if the appraisal results are less than the purchase price defined in the previous mutual agreement.

Tip: Work with your real estate agent to schedule your vacation home appraisal for a date after your inspection report comes back. If the inspection results lead you to back away from the deal, you can cancel your appraisal. Appraisal fees are non-refundable, and you don’t want to spend money on them if the inspection report turns out to be a deal killer.

Step 10: Start planning for vacation rental property management

If you’re toying with the idea of buying a vacation home to use as a vacation rental, or if you’ve already decided to welcome short-term guests, this is the time to start thinking about vacation rental property management.

Renting out your second home as a vacation rental can deliver significant income, and working with a trusted property manager means you can enjoy your home more when you come to visit. If you haven’t already, it can be helpful to run data-driven vacation rental income estimates.

Step 11: Close on your vacation home real estate

As you and the seller come to final agreements, you move to close on the property…

Close with a home loan

Once your loan is approved, your lender will submit the loan documents to the title company. From there, the documents will be processed for signing and prepared for submission to the county. You will come to closing with your check for the down payment and all other closing costs. Once the transaction is funded and recorded, you will get your keys on the aforementioned closing date.

Close with cash

If you’re buying a vacation home with cash, a typical closing scenario would involve you bringing a cashier’s check to the title company at closing. Then, the title company will deposit the cashier’s check into their own bank account. After the seller signs their documents and the title company gets the transition of the deed recorded at the county, the title company wires the payment funds to the seller’s bank account.

Step 12: Set up your vacation home as a vacation rental

Now that you are officially the homeowner you can begin to list your vacation rental. To get a better sense of how your home will be utilized you should consider the following:

Do you want to manage the vacation rental yourself?

If so, do you have a sense of what’s involved?

How much freedom do you want to have to use the home for your personal vacations?

Is it more important to you to have the vacation rental as a project or hobby, or would you rather visit and simply relax?

Are you interested in earning passive income and helping your home pay for itself?

Does your home need improvements or design upgrades to optimize your income and your vacation home experience?

How much can your property potentially earn as a RIATERRA vacation rental?

RIATERRA is revolutionizing the vacation rental industry and earning great returns for our clients.

Ready to get started?

Complete our Prospective Buyer Form to find out how much your home can generate through our full-service management.