A vacation rental investment is perhaps the best investing opportunity there is. But, how do you go about buying one that is lucrative?
Buying an investment property is one of the best ideas you could think about. But, when it comes to vacation homes, it is another level of “great ideas.” So, here are the five real estate basics when buying a vacation home investment property:
Related: Real Estate Investing for Beginners: The Basics
#1: Find a property
Finding vacation home rentals starts with choosing a location first. For this purpose, pay attention to locations with the highest tourism rates. Such locations tend to show higher occupancy rates on the charts. Places such as beaches, mountains, and historical destinations make for the best locations for vacation rental investments.
How to find a vacation rental investment for sale
One way to find a vacation home for sale is by searching listing websites. Go online and search for the best real estate websites there are. One website we can recommend is, of course, Mashvisor.
Mashvisor offers a huge list of vacation properties for sale in addition to location analysis for any specific area you pick. Moreover, you can use our heatmap to find out about the optimal rental strategy in a certain location.
Another way you can go about it is by asking people around you. This is where the role of connections comes in the business. Real estate investing is mostly about who you know. Get access to other investors who are experienced and constantly trading properties. A good idea might be a real estate investment network or a real estate investment club. Either way, you will get to know more people who operate in the business and know the best places to find investment properties for sale.
#2: Process some numbers
By processing some numbers we mean calculating the income. In other words, find out if the property is likely to produce a positive cash flow. Why positive cash flow? Because that’s why you are going with this particular real estate investment strategy. Keep in mind that calculating the income comes with a few expenses you must take into account:
1) Taxes (income, property, occupancy taxes and so on)
3) Operational expenses
These are, of course, not the only expenses involved with this rental strategy. However, this is something to start with.
Besides calculating the income, you have to take other return on investment measures into account. For each property you look into, you must conduct what we call the investment property analysis as well as a comparative market analysis. These analyses are important to analyze the property, literally, inside out. The first one analyzes the capitalization rate as well as the cash on cash return. The latter, however, analyzes the location of the property. In addition, it compares it to other properties sharing similar features.
What are the ways you can make money with a vacation rental investment?
Even though there are a few ways you could make money with a vacation rental investment, Airbnb is the most popular choice at the moment. It is basically an online platform that connects people with available living spaces for travelers who are looking for cheap, short stays. It has proven to be one of the best real estate investments in the field. Many Airbnb investors managed to at least double their income streams thanks to this platform. Continue reading to learn more about how you can make money by owning an Airbnb rental property when you start investing.
Related: Airbnb Real Estate Investing: 3 Steps to Success
#3: Investment property financing
Once you have found the vacation rental investment you want, it is time to get your finances in order. Of course, this is where you start thinking about the mortgage and searching for reliable mortgage lenders. Thus, your criteria should be based on the interest rates as well as the mortgage term. Some are short-term loans and others are long-term. Find the best option that suits your financial situation and make sure you have your down payment in place.
Another option might be hard money lending. These types of loans tend to be more on the short-term side. You could apply for one but the maximum repayment period is typically from 6 months up to 3 years. However, we do not recommend it for beginner investors as it might put them at risk of failing to repay the loan on time. After all, the loan term plays a major role in your business. Therefore, you want to pay attention to that.
Related: Financing an Investment Property: The Aspect of Creative Financing
#4: Buy the property
At this point, you’ve got everything ready for closing the deal. You should expect to pay some closing costs which are typically somewhere around 2.5% of the total purchase price. Sure enough, it is a good idea to get that ready beforehand to prevent getting into a financial bind.
Mashvisor has the best guide to help you get your finances in order before buying a vacation rental investment here!
#5: Start investing!
Finally, you are the owner of a vacation rental investment property. Now it is time to start investing by renting it. So, you want to go to a vacation rental website (Airbnb) and start by listing the property. Set your price, write a proper description and make sure it looks appealing to Airbnb guests.
One thing you must keep in mind though, Airbnb property management. We know for a fact that owning an Airbnb rental property requires some management work. But, Airbnb has made it easier for Airbnb investors to connect with vacation home managers. These are usually super hosts on Airbnb who get the best ratings on their own properties. Aside from the property management fees, we think it is absolutely a good idea to hire one for your vacation rental investment.
To stay on the safe side and make sure you will still have positive cash flow, use the Airbnb profit calculator. This tool is available on Mashvisor and is the best when it comes to processing numbers. In a matter of minutes, you can learn all about a property and make a decision on the best vacation rental investment. Start by clicking here to sign up. After that, feel free to check out our blog and learn all about a vacation rental investment!