Simple Finances

Everyone dreams of having a cottage in the middle of nowhere – a place they can retreat to when they want to be surrounded by nature and just get some peace and quiet. With that in mind, since you won’t always be there to take care of the cottage and maintain it, you’ll need a way to finance it. And since you won’t be there all the time, you might as well consider renting out the place. With that in mind, even as you are renting out your property to friends and people here and there, you might not have the necessary funds to keep the property in good condition. So, here are just a couple of tips for you to finance your cottage rental maintenance. Get a Conforming Loan The lending qualifications when it comes to a vacation rental property are much more lenient as compared to a standard rental property – but at the same time, the rules are much stricter as compared to a primary residence. In these circumstances, the lender will know that the borrower will be there for a certain part of the year and that they won’t just depend on the rental money to pay the mortgage. Consider Using a Credit Card Credit cards are likely one of the most efficient ways to finance your cottage rental maintenance. As long as you have a steady stream of income coming from the cottage or any kind of resource, this line of credit might certainly help you out of a bind. These lines of credit are often limited to a certain sum, but as long as you know how much it will take for the monthly maintenance, everything should go just smoothly. Factor Debt-to-Income Ratio Whenever you are planning on getting any kind of financing, you might want to factor your debt-to-income ratio in. In this regard, you might want to calculate your exact income that comes in every month and the amount you will have to pay on buying or maintaining the property. Never go for higher sums than you can handle. One good rule of thumb is to take the monthly income that you receive from that property and spend no more than 43% of what you receive on maintenance. This way, you can keep the place in peak shape while getting some profit out of the cottage. Take Out a Short-Term Loan Short-term loans (i.e. home equity borrowing) are given in the short term and are often used as interim financing. Plus, used correctly, these kinds of loans may help you in the long run as well. Let’s say that the maintenance you are planning to give includes a lot of misc modifications that will attract the clients. This way, you’ll be getting more people – and eventually more money. It would be a small investment in maintenance, but a big investment in your future profits. Make Your Intentions Very Clear Whenever you are planning to take out a loan, make sure that you are always honest with the lender about what you are planning to do with that property. When they see a successful plan, they’ll know you’ll be able to pay them back. As such, you might want to make it very clear to them if you want to rent out the cottage on the full term or if you wish to live in it as well. If you get a convenience loan, you will have a better chance at scoring a good interest rate if they know exactly where you are headed with your business. Plus, if you plan on renting the cottage out full time, it will no longer be considered a private home; it will become an investment property. Investors will have more trust in giving you a loan this way. Invest in Operational Services Depending on the case, you may or may not want to opt for operational services when it comes to maintenance. Obviously, if you get the right products, know how to provide the right maintenance, and live nearby the cottage, then it might be more price-effective for you to maintain the cottage yourself. However, if you do not live nearby, then commuting continuously might have you spending a lot more money than you necessarily had to. In these cases, it might be more price-effective to get some operational services to handle your cottage maintenance. This will also give you enough time to focus on your day job, so that you may get more funds for maintenance. Tap into Home Equity If the maintenance involves more than just cleaning the cottage, then you might need to borrow a more significant amount – in which case, you should harness some home equity. This is a good option if you have some major renovation in mind. Plus, the main advantage of getting financing through home equity loans is that you will not have to pay as much in interest. The property is yours already, so you will be borrowing from yourself in this case. The rates are variable based on how much you have paid up until that point, but it is often much more convenient to borrow this way. Consider Portfolio Loans Portfolio loans are not as widespread, but they are still a great option if you need to finance your cottage rental maintenance. These loans are usually used by investors that want to finance multiple properties at once, as well as a multiunit vacation property. If you have multiple cottages laid out or if you have a particularly big cottage to handle, then you might want to consider getting a portfolio loan. It can be very challenging to finance your cottage rental maintenance. Not only do you have to be careful where to get the money, but you also need to be smart in getting and using it. However, if you use the funds correctly on maintenance, your cottage can bring a lot of profit for you in the future.