Despite the pandemic’s effect on the tourism industry, the short-term rental market is prospering. After almost two years of uncertainty, people travel and rent short-term rentals in greater numbers than ever recorded previously. To date, Airbnb’s most profitable quarter occurred in Q3 2021, with a net income four times higher than of 2020.
Purchasing vacation rental properties may appear to be an additional expense, but it may also be a very rewarding investment, depending on how you manage it. Vacation rental homes are one of the most lucrative options for real estate investors to increase their income.
2022 will be an ideal year to invest in a vacation property. Mashvisor provides an exclusive early insight at the top 10 places for buying a vacation home in California worth considering. This is a list of the areas in the United States where short-term rental vacation investors should focus their attention.
Buying a Vacation Home in California: Things to Consider
There are numerous compelling reasons for buying a vacation rental property. However, like with any significant financial choice, there is a great deal you should know before you invest.
For instance, did you know that mortgages for vacation houses and other non-primary houses fall under a separate category? Or that property maintenance fees for vacation rentals can be three times as high as those for long-term rentals?
With that in consideration, here are the advantages and disadvantages of purchasing a vacation home, as well as what you should know regarding taxes, finance, and other considerations before you begin looking for houses.
Reasons for Investing in Real Estate: Pros and Cons
Purchasing a vacation property is a significant financial commitment. However, it’s critical to grasp the advantages and disadvantages before you dig in. So we’ll begin with the advantages. The following are some of the most widely mentioned benefits of purchasing a vacation house.
You Might End up Saving Money in the Long Term
When buying a vacation home in California, if you spend two months every summer at the seaside, your yearly mortgage payments on a vacation house may be similar to the cost of two months’ rent. Additionally, you’ll be creating capital over time rather than just handing up your income to someone else.
Generate Income When You Are Not There
You can rent out your vacation property when you are not there. That might transform the residence into a big moneymaker in prominent vacation areas. We’ll discuss the California housing market in further detail later.
Real Estate Values
Real estate values, particularly in popular tourist destinations, have a tendency to rise over time. So even if you don’t want to rent out your vacation property, it may assist you in making money in real estate. In addition, you may be eligible for mortgage interest and property tax deductions if you do not employ your vacation house primarily as a rental property.
Customize a Vacation House
Buying a vacation home in California comes with additional perks like tailoring a vacation house to your specific needs and desires, as well as storing personal goods there. For instance, if you own a beachfront home, you do not need to carry your beach chairs and children’s water toys on every trip.
Transform It Into Primary Home
A vacation home could someday become a permanent residence for real estate investors or anybody else. Purchasing a vacation house while still in your twenties or thirties may provide you with an attractive location to retire in the future.
Of course, there are other reasons to own a vacation property, such as providing a place for your family members to get away together. However, everybody desires a vacation home for a variety of reasons.
Nevertheless, here are some of the drawbacks to buying a vacation home. Therefore, it is crucial to evaluate these factors before making a purchase.
Vacation Homes Can Be Expensive
Vacation homes can be costly, even more so in popular destinations. For example, my friend discussed the possibility of purchasing a two-bedroom apartment in one of his favorite beach towns. Then he noticed that the median price of the houses was nearly twice what he paid for his primary residence.
Apart from the mortgage, you’ll also be responsible for property taxes, insurance, utility, and other fees associated with two residences.
It Can Be Difficult to Finance
Financing vacation properties can be challenging when buying a vacation home in California. Lenders charge higher mortgage rates and require larger down payments on second homes than they do on primary residences. In addition, you are responsible for maintenance. You’ll need to take care of maintenance issues yourself or hire somebody to do so.
Real Estate Is Not a Liquid Asset
A liquid asset is one that can be turned into cash fast and readily while retaining its market worth. Real estate, on the other hand, is not a liquid asset. It might be challenging to sell the property quickly without accepting considerably less than the home is worth. Therefore, numerous investment managers advise against purchasing a vacation house – or any type of real estate – unless you intend to keep it for at least five years.
California Real Estate Market: Best Places to Buy a Vacation Home
Buying a vacation house in California that can be converted into a vacation rental while not in use is an excellent approach to accomplish your goals while also establishing an Airbnb income foundation for future success. In addition, the ability to use the property as both a vacation property and a short-term rental reduces the home search to some of California’s most famous and most stunning areas.
Now, let’s look at our top 10 places for buying a vacation home in California in 2022. Mashvisor provides you with all the exclusive data so that you can easily narrow down your options!
#1 Alpine, San Diego
- Median Property Price: $808,320
- Average Price per Square Foot: $373.72
- Days on Market: 62
- Listings: 11
- Airbnb Occupancy Rate: 65.36%
- Airbnb Rental Income: $5,765.17
- Airbnb Daily Rate: $293
- Airbnb Cash on Cash Return: 9.74%
- Price to Rent Ratio: 11.68
- Walk Score: 63
#2 Ridgecrest, Kern
- Median Property Price: $298,375
- Average Price per Square Foot: $174.81
- Days on Market: 72
- Listings: 47
- Airbnb Occupancy Rate: 62.81%
- Airbnb Rental Income: $2,923.04
- Airbnb Daily Rate: $106
- Airbnb Cash on Cash Return: 6.46%
- Price to Rent Ratio: 8.51
- Walk Score: 83
#3 Joshua Tree, San Bernardino
- Median Property Price: $513,808
- Average Price per Square Foot: $407.61
- Days on Market: 74
- Listings: 375
- Airbnb Occupancy Rate: 62.31%
- Airbnb Rental Income: $3,998.73
- Airbnb Daily Rate: $240
- Airbnb Cash on Cash Return: 5.37%
- Price to Rent Ratio: 10.71
- Walk Score: 53
#4 Temecula, Riverside
- Median Property Price: $777,905
- Average Price per Square Foot: $351.52
- Days on Market: 53
- Listings: 265
- Airbnb Occupancy Rate: 65.01%
- Airbnb Rental Income: $7,382.59
- Airbnb Daily Rate: $442
- Airbnb Cash on Cash Return: 6.95%
- Price to Rent Ratio: 8.78
- Walk Score: 28
#5 Coachella, Riverside
- Median Property Price: $301,222
- Average Price per Square Foot: $239.08
- Days on Market: /
- Listings: 63
- Airbnb Occupancy Rate: 42.59%
- Airbnb Rental Income: $2,633.68
- Airbnb Daily Rate: $605
- Airbnb Cash on Cash Return: 3.87%
- Price to Rent Ratio: 9.53
- Walk Score: 63
#6 Palm Springs, Riverside
- Median Property Price: $958,689
- Average Price per Square Foot: $467.64
- Days on Market: 73
- Listings: 579
- Airbnb Occupancy Rate: 63.47%
- Airbnb Rental Income: $5,114.67
- Airbnb Daily Rate: $365
- Airbnb Cash on Cash Return: 3.36%
- Price to Rent Ratio: 15.62
- Walk Score: 59
#7 Big Bear Lake, San Bernardino
- Median Property Price: $740,637
- Average Price per Square Foot: $498.35
- Days on Market: 57
- Listings: 778
- Airbnb Occupancy Rate: 48.73%
- Airbnb Rental Income: $4,147.60
- Airbnb Daily Rate: $358
- Airbnb Cash on Cash Return: 3.55%
- Price to Rent Ratio: 14.88
- Walk Score: 64
#8 South Lake Tahoe, El Dorado
- Median Property Price: $998,821
- Average Price per Square Foot: $658.14
- Days on Market: 60
- Listings: 806
- Airbnb Occupancy Rate: 67.35%
- Airbnb Rental Income: $4,816.75
- Airbnb Daily Rate: $305
- Airbnb Cash on Cash Return: 4.19%
- Price to Rent Ratio: 17.28
- Walk Score: 57
#9 Malibu, Los Angeles
- Median Property Price: $2,513,300
- Average Price per Square Foot: $1,201.89
- Days on Market: 85
- Listings: 220
- Airbnb Occupancy Rate: 65.45%
- Airbnb Rental Income: $13,390.66
- Airbnb Daily Rate: $816
- Airbnb Cash on Cash Return: 3.71%
- Price to Rent Ratio: 15.64
- Walk Score: 21
#10 Loma Linda, San Bernardino
- Median Property Price: $913,909
- Average Price per Square Foot: $306.06
- Days on Market: 65
- Listings: 14
- Airbnb Occupancy Rate: 79.29%
- Airbnb Rental Income: $6,551.96
- Airbnb Daily Rate: $197
- Airbnb Cash on Cash Return: 6.89%
- Price to Rent Ratio: 11.62
- Walk Score: 35
When buying a vacation home in California, Mashvisor calculated the following and more:
- Cash on Cash Return: Airbnb cash on cash return is a statistic used to anticipate the Airbnb return on investment (ROI) of a property purchased with a mortgage. The formula takes the annual pre-tax cash flow and divides it by the total cash investment. This proportion is helpful when deciding on loan financing or how much to put down.
- Median Property Price: The median home price in the United States is approximately $140 per square foot, or $340,000—meaning that half of US homes sold for more and half sold for less. Due to their size, placement, and features, vacation homes have a higher median market price than average properties.
- Airbnb Occupancy Rate: The Airbnb occupancy rate is calculated as the percentage of booked nights to the total number of nights made available for booking on Airbnb. It’s a metric that indicates how frequently guests occupy your Airbnb listing.
Buying a Vacation Home in California: Final Thoughts
If you are buying a second house, it should be treated just as seriously, if not more so, than purchasing your first property. You’ll want to evaluate both the numerous obligations and the associated expenses. As a result, it is strongly advised that you do not become caught up in the moment and purchase a California vacation property for which you are unprepared.
When buying a vacation home in California, you’ll want to evaluate the general purpose of this residence. Are you seeking a property that your close family can enjoy anytime they wish? If that is the case, you’ll want to choose something easily accessible (geographically) for everyone in the household. Are you looking for a house to rent for the majority of the year? If this is the case, you’ll want to locate a popular rental area in California.
It’s pretty simple to be swept up in the lovely aesthetics of California vacation houses and overlook the cost. While some may assume that going over budget is irrelevant if renting out their vacation home, rent is not assured to be paid on time, and there is no certainty that you will rent the house. As a result, going over budget and failing to compensate for these occurrences may result in debt. So instead, pick something easily affordable, whether or not you have a tenant.
While some may believe they completely understand the consequences of paying taxes when buying a vacation home in California, making judgments about tax regulations might land you in serious difficulty with the local and federal governments. You’ll want to ensure that you understand all of the financial obligations that will arise after entering the deal.
Luxurious living in a state like California may be a great experience. However, while owning a vacation property is an excellent opportunity to discover new places, spend time with loved ones, and generate extra money, it is not something to take lightly. So as you begin your search for accessible real estate in the region, be sure to keep the above suggestions in mind. Investing the time to do your research is frequently the smartest way to ensure you’re making an informed choice that won’t haunt you later.
So, to make things easier for you, allow Mashvisor to help you make the best investment choices according to your aims. Join now to access all the valuable features that thousands of successful investors already use.