How to Invest in Real Estate as a Side Hustle

Each year thousands of Florida vacationers take advantage of the weather, beach, and endless things to do. At the same time, vacation rental property owners are cashing in on the thriving tourism.

Owning vacation rental property in a high tourism area, such as Florida, is a major way to build wealth. For those considering stepping into owning vacation rental property, here’s a few things to consider.

Advantages

Long or short term

When buying property as a rental, homeowners have the option to choose long term or short term rentals. Both have pros and cons, but both are a great way to have your mortgage paid by someone else, and receive passive income.

Short term rentals are those geared towards tourists and vacationers. Typically, the property will be rented for a weekend or a week. The major advantage of this is more money is typically charged on a per night basis.

Long term rentals, such as 6 or 12 month leases, are typically geared towards locals or those who are moving to the area. The advantage of this is that your income coming in from the property is more predictable.

Florida also has an additional demand that is unique to our market, and that is “snowbird” or winter rentals. With these type of rentals, a person will rent a condo or house for 1 to 3 months during the winter season.

Building wealth

Buying investment property with the intent to rent out is a great way to build your net worth. Both long term rentals and short term rentals have pros

Your own vacation destination

Another major advantage to owning your own vacation rental property is that you and your family can vacation there whenever you want! Instead of paying money to stay at another’s property, you can visit your property that others are paying for.

Financing

When looking to finance your vacation rental property, your lender will factor in a few metrics unique to investment property management.

Debt Service Coverage Ratio

Lenders will take into account how much income the property is likely to produce. This is factored into your overall debt-to-income ratio, which we will cover below. The debt service coverage ratio measures how much rental income remains after paying for all costs, such as the mortgage and interest payment, HOA, management fees, ect.

Debt-to-income Ratio and FICO

Though these metrics are not unique to financing investment property, they will be taken into account when determining how much you qualify to borrow. Typically, lenders vacation rental financing requires higher credit scores than financing a home as a primary residence. Your lender can look at your financial position and create a clear mortgage plan for your situation uniquely.

Managing

Once you close on your new property you’ll have the option to manage yourself, or hire out a management company.

Obviously, managing your own property is not as easy for those who do not live nearby, compared to those who are local and live near their property. One popular way to have your property managed is by hiring a reputable management company, such as a local real estate office that specializes in property management.

Each management office operates differently, but typically a fee is collected from the homeowner based on how much rental money was collected that month