Turning a Second Home Into Vacation Rental

BEVERLY HILLS, Calif. (TheStreet) -- As investors speculate whether the real estate market is about to make a turnaround, some are considering offering second homes as vacation rentals, which can supplement operating expenses incurred when the property isn't in use. But before you sign closing documents expecting it's as simple as creating an account with the popular vacation-rentals-by-owner site, VRBO.com, here are a few tips to make sure you know what to expect and are investing in a home people really want to rent.

There's plenty to think about before you can start renting a second home for income, especially if you haven't bought the second home yet.

Do your homework
You've likely watched endless episodes of House Hunters in which buyers swoop in for 24 hours in St. John and buy one $1 million property from among three homes. That's not how it works in the real world. If you're planning to buy a second home for use as a vacation rental, do yourself a favor and plan multiple trips to your intended destination, researching and walking several neighborhoods to get the feel and mood of each. Keep in mind that you're not buying only a house; you're buying a neighborhood. Potential vacation renters look first at what neighborhood they want to be in, then what houses are available. Most importantly, whether you're buying or already own a potential rental, check with the city to see what type of permits are required (or even if short-term rentals are allowed), and with the holder of your homeowners insurance to make sure you're covered and for how much.

The bigger the better
While you may think there's no big difference between the three-bedroom/two-bathroom house and the one with four bedrooms and four bathrooms, in the rental world it can mean a difference of 30% to 50% in potential rental income. Try to find the maximum amount of bedrooms and baths possible so the home appeals to larger families and groups with more than one or two couples sharing the home. Most potential buyers simply do the math of dividing the room rate by the number of bedrooms to give the cost equivalent of staying in a hotel. Also, look at local hotel rates through the year for fluctuation between high and low seasons to foresee the ebbs and flows of your potential rental income.

Photos are key
Whether selling or renting your house, professional photographs (likely costing anywhere from $200 to $500) are just about the best investment you can make. Cheap, DIY photography can make an average house rental look terrible. Keep in mind that typically the more photos you post on sites such as VRBO, the more it costs, but also the higher your listing is placed in your geographic target market. Try for no less than 10 photos, with the best exterior feature of your property as the first or top listing image, followed by wide-angle lens interior shots and a few of the property at night.

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