Have you been contemplating the idea of starting a real estate investing business? Have you been considering joining the millions of Americans being successful real estate investors? If so, you should think about buying a vacation home. Purchasing and owning a vacation home might be one of the easiest ways of becoming a real estate investor.
With this statement come many real estate investing questions: 1. Why is a vacation home such a great way to start real estate investing?; 2. What does it take to become a real estate investor through a vacation home?; 3. What are the best places to buy a vacation home? To learn the answers to these important questions and many more, just keep reading.
Related: The Future of Vacation Rental Investment Properties
Why Is a Vacation Home Possibly the Best Real Estate Investment Strategy?
Well, the answer to this question is quite simple. A vacation home has the benefit of serving two functions at the same time: being your own second home at times of vacation (where the name comes from) and acting as a rental property the rest of the year. Financially speaking, this first means that you will be able to save money from your vacation every year as you won’t have to pay for expensive hotels of disputable quality. Every year you will be able to spend a week or a month at your favorite location, in the convenience and comfort of your own second home. Second, whenever your real estate property is not occupied by you, you can rent it out to tenants as a rental property to make rental income. So, your own second home will not only let you save money from your vacation expenses but also actually let you make money the rest of the year. That’s quite a sweet deal, no? So, future real estate investors, keep in mind that a vacation home is probably the best real estate investment strategy.
Related: Why It Totally Makes Sense to Rent Out Your Vacation Homes
What Are the Tax Implications of Owning a Vacation Home as a Real Estate Investment Property?
To be honest, the situation is quite complicated. With regards to taxes on a vacation home, the same rules apply as to a second home. As a second home owner, a real estate investor, and a landlord, you could qualify for various types of tax deductions. However, it all depends on for how long you live in your own second home and for how long you rent it out to tenants. If you use your vacation home only for your own personal purposes, then you can deduct the mortgage interest. If you rent out your vacation home for up to 14 days per year, it is still considered personal use, so you don’t have to report to the IRS. If you rent out your real estate property for 15 days or more per year and live there for up to 14 days, your own second home is considered a rental property and the rental expenses can be deducted from the taxes. This means that buying a vacation home is potentially the best real estate investment strategy as you can actually take advantage of tax deductions.
What Are the Best Places to Own a Vacation Home?
The answer is straightforward: The best places to own a vacation home are the top locations for vacations, from the seaside, through the mountain, to major tourist locations. Naturally, California ranks in the top positions among the best places to have a vacation home. But the State of California is quite a broad geographical location. So, we need to know what the best places to buy a vacation home in California are. Let’s have a look:
Related: Best places to buy vacation rental property
What Are the Best Places to Buy a Vacation Home in California?
Before discussing the best places to buy a vacation home in California, it’s important to clarify what the best rental strategy is for this kind of investment property. No doubt, this has to be Airbnb as you want to rent out your real estate property only part time, i.e., when you are not using it as your own second home. It is good news that Airbnb is still legal in California. Actually state legislators have not taken any major actions to facilitate or prevent the Airbnb rental strategy. However, hotel lobbies are acting on it, so if you decide to go for a vacation home in California to rent out as Airbnb, you should keep your eyes open for any legal updates.
Finally, following is a list of the best places to buy a vacation home in California. The figures have been calculated by Mashvisor’s rental property calculator, which saves real estate investors tons of time and efforts by providing all crucial analytics within a couple of minutes. These include rental income, CoC return, cap rate, and occupancy rate, among others, divided by traditional and Airbnb rental strategy. For your convenience, the data presented below includes both the traditional and Airbnb rental strategy, in case you decide to turn your vacation home into a full-time, long-term rental property in the future. Please note that the CoC return and cap rate are identical as Mashvisor’s rental property calculator considers investment properties to be paid for fully in cash.
So, here are the best places to buy a vacation home in California:
1. Nice
- Median Property Price: $251,000
- Airbnb Rental Income: $1,770
- Traditional Rental Income: –
- Airbnb CoC Return: 35.1%
- Traditional CoC Return: –
- Airbnb Cap Rate: 35.1%
- Traditional Cap Rate: –
- Airbnb Occupancy Rate: 20.6%
The #1 among the best places to buy a vacation home in California in 2017 is definitely Nice, which offers a really high CoC return and cap rate for the Airbnb rental strategy. An additional benefit is the fact that property prices are quite affordable.
2. Needles
- Median Property Price: $77,400
- Airbnb Rental Income: $1,490
- Traditional Rental Income: $940
- Airbnb CoC Return: 17.2%
- Traditional CoC Return: 9.4%
- Airbnb Cap Rate: 17.2%
- Traditional Cap Rate: 9.4%
- Airbnb Occupancy Rate: 23.2%
The next among the best places to buy a vacation home in California is Needless, which also features great Airbnb CoC return and cap rate. Affordability is even more significant here, with a median property price well below the $100,000 threshold.
3. Coachella
- Median Property Price: $249,000
- Airbnb Rental Income: $4,260
- Traditional Rental Income: $1,400
- Airbnb CoC Return: 17.1%
- Traditional CoC Return: 3.6%
- Airbnb Cap Rate: 17.1%
- Traditional Cap Rate: 3.6%
- Airbnb Occupancy Rate: 23.6%
The third in the list of the best places to buy a vacation home in California according to Mashvisor’s rental property calculator is Coachella. The expected rental income for the Airbnb rental strategy is above $4,000 per month.
4. Fairfield
- Median Property Price: $475,000
- Airbnb Rental Income: $7,540
- Traditional Rental Income: $1,850
- Airbnb CoC Return: 13.4%
- Traditional CoC Return: 1.7%
- Airbnb Cap Rate: 13.4%
- Traditional Cap Rate: 1.7%
- Airbnb Occupancy Rate: 29.3%
Mashvisor’s rental property calculator ranks Fairfield as #4 among the best places to buy a vacation home in California, based on profitability, including both Airbnb CoC return and cap rate.
5. Shaver Lake
- Median Property Price: $199,900
- Airbnb Rental Income: $2,600
- Traditional Rental Income: $1,260
- Airbnb CoC Return: 11.7%
- Traditional CoC Return: 4.2%
- Airbnb Cap Rate: 11.7%
- Traditional Cap Rate: 4.2%
- Airbnb Occupancy Rate: 30.9%
If you still haven’t found yours among the best places to buy a vacation home in California, Mashvisor’s rental property calculator has a solution: Shaver Lake. The Airbnb rental income is great, while the median property price is relatively low.
Once you have selected your top choice from the best places to buy a vacation home in California this year, remember to come back to Mashvisor’s rental property calculator to help you in the selection of the top neighborhood in this city and the best rental property there.
