The low sticker price for fixer-upper vacation rentals can have quite the appeal for prospective buyers. There’s nothing more enticing than a good buy, with the promise of vacation rental profits in the future. If you’ve ever seen any home improvement show, you should know that fixer-uppers are not always what they seem.
Sometimes the road to profit is a long one when it comes to investing in a fixer-upper vacation rental. There are some things you can do before taking the jump and purchasing a property in need of some TLC. We’ve outlined all the major considerations of purchasing a fixer-upper home as a vacation rental to ensure you’re making the right investment decision.
Pros and cons of buying a fixer-upper vacation rental
If you’re new to vacation rental investing, then you’ll want to fully understand what it takes to purchase a vacation rental that needs major renovations. All the HGTV in the world can’t prepare you for the time, money, and energy that comes with taking on a fixer-upper project. We’ll go over all the major points and common pitfalls of purchasing a renovation-heavy property so you’re prepared for what obstacles might come up on your journey to turning a fixer-upper into a fabulous vacation home.
The biggest drawback to fixer-uppers? You might’ve guessed it: hidden costs. Fixer-uppers typically are rather weathered, be it from maltreatment of the property or just a general decrepitness from age. The main issue is that these expenses lurk in places you wouldn’t expect; ranging from a full drywall replacement to gutting the sewage system, or even having to fix structural damage, all of which can be extremely costly undertakings. Hidden costs don’t start and end with the construction itself. Newcastle Permanent says the five most common hidden expenses include:
- Unexpected fees
- Choosing the wrong financing
- Changing your mind mid-renovation
- Unexpected issues and problems
- Thinking you can live (or rent) on site
When investing in a fixer-upper vacation rental, ensure you have sufficient funds set aside for any incidentals, be it extra fees or construction costs that you didn’t see coming.
Higher maintenance costs
While we’re on the topic of expenses, let’s cover maintenance costs. Unfortunately, the costs continue even after the renovation is complete. The same can be said for move-in-ready homes, but fixer-uppers sometimes can have inflated utility and maintenance costs.
Why? Let’s take insulation as an example. If you’re renovating a house from the early 1900s, you’re dealing with insulation, drywall, windows, and enclosings that are over one hundred years old! The historical value will surely be worth your investment (more on that later), but you must factor in a higher rate for heating and cooling a space that has old insulation. Unless you’re planning to entirely gut the property, be prepared for monthly expenses also to be higher.
Historic or rebuild restrictions
In most cases, a fixer-upper is going to be an older build. This can be a huge perk for your business! Many vacation rental owners add “historic,” “retro,” or “restored” in their vacation rental listing descriptions. Having a historic vacation rental is a huge selling point for your business and will allow you to increase your average daily rate.
With that said, many localities don’t treat this lightly. Some towns have strict rebuild laws and preservation procedures to follow so that historic buildings maintain their original integrity. If you are rebuilding or renovating a historic property, or even just a regular fixer-upper, make sure you’ve obtained the necessary permits before starting the renovation. Failure to comply with local renovation laws could result in halting your construction, legal repercussions, or steep fines.
Initial vacancy time
Beyond cost, fixer-uppers require a lot of downtime, so don’t expect to hit the ground running immediately. It could take months or even a whole year to have the renovation completed and ready to accept guests.
Renovating can be a bit trickier than your usual construction, as there’s already an existing structure to take into account. Don’t expect to be able to accept guests after a couple of weeks. Fixer-upper renovation times can be long and must be completely finished before guests step foot on the property.
That doesn’t mean you can’t start to build the hype now! Marketing your property before opening the doors can get potential guests excited about the new property. Make Instagram stories following the progress of your renovation or a “coming soon” countdown clock on Facebook. Use the vacancy time effectively and get guests ready for your up and coming property.
The upsides to purchasing a fixer-upper home as a vacation rental
Buying a fixer-upper vacation rental isn’t all uphill. There are many benefits to buying a vacation home like this. Most of the challenges will appear during the renovation phase, then you can prepare for a more passive income as your fixer-upper starts to turn a profit.
Ability to customize and create
When you buy a move-in-ready vacation home, the creativity has already been taken care of for you. The floor plan, paint, fixtures, and appliances are already in place, leaving little room for you to add your own personal touches. Fixer-uppers are absolutely for those who are artistically oriented. If you’re ready to knock down some walls, start with a blank slate, and add a bit of personal flair, then maybe this is the project for you!
The price tag
Obviously, the greatest allure of all is the price tag. A fixer-upper is going to cost you a lot less than a ready-to-rental house typically would. Of course, what you don’t pay in cash, you’ll pay in energy, labor, and time, but consider that it still might outweigh what you would’ve spent on a ready-to-go home.
The interior designer in all of us makes a fixer-upper quite desirable. The chance to completely upgrade a home to your liking for half the cost is an incredible perk. You can customize every corner, layout, and room and have it fit perfectly with your potential vacation rental theme.
While it sounds like a fun project, keep in mind that you’d be playing the long game. Fixer-uppers require a fair bit of work, time, and, still, money. Sometimes vacation rental owners get so caught up in the reno-vision that they spend more on a fixer-upper than they would on a finished home!
Like any other vacation rental, it might take a bit of time to turn a profit, but even more so for a fixer-upper. The first couple of months after the initial purchase, the home will have to sit vacantly, so make sure you factor that into your budget and anticipated expenses. You can crunch all your renovation numbers by using our short-term rental expense spreadsheet.
If you’re planning to take on a fixer-upper you’ll want to make sure you have an exhaustive plan in mind. Reno properties can be plenty of work, but the reward is worth the renovation. By factoring the rebuild into your overall vacation rental business plan, you’ll be one step closer to reconstructing the vacation rental of your and your guests’ dreams.