Many beginner real estate investors wonder how to buy a vacation home and rent it out. If you are looking for tips to start investing with probably one of the best real estate investing strategies for beginners, then you’ve come to the right place. We will show you everything you need to know about how to buy a vacation home– from choosing the best location to investment property analysis and finally, how to rent it out. But first…
Is Buying a Vacation Home a Good Investment?
The advantages of buying a vacation home to rent out are numerous. Besides having a property in a vacation destination by the beach or in the mountains, renting out a house in a niche market can surely bring some extra income. Thanks to the popularity of short term rental websites, you will find no trouble in marketing and renting out a house. But just like any real estate investment strategy, buying a vacation home has its down points, mainly the investment risk and complexity of property management, especially if your rental property is not within immediate reach.
It’s important to understand all of the pros and cons of owning a vacation rental before you start the process of looking for one. That way, you can be sure you get the most out of your rental property while also mitigating or even avoiding any of the risks. ReadVacation Home Rentals for Real Estate Investing: The Pros and Cons to learn more.
How to Buy a Vacation Home and Rent It Out
Step #1: Choose the Best Location
The first step of how to buy a vacation home and rent it out is finding a good location for buying a vacation home as an investment. Since you are planning to rent out your vacation rental property as a short term rental, you should be looking for locations with high demand for short term rental properties. Such places will most likely be close to beaches, mountains, lakes, national parks, and other tourist attractions.
The amenities of a location alone are not the best indicator for the profitability of an investment property. The best places to buy a vacation home are those that offer affordable investment properties with good Airbnb profitability indicators such as Occupancy Rate.
Related: The 20 Best Places to Buy a Vacation Home in the US at the Beginning of 2018: Part 1
Before you choose a location to buy a vacation property in, make sure to check the local short term rental laws and Airbnb regulations. Many cities and states have been implementing strict Airbnb regulations, making them far from worthy for an Airbnb investment. Check out the top cities with the least Airbnb legal issues in 2019.
The best neighborhoods to buy a vacation rental property are those with affordable properties that guarantee a high return on investment and a high Airbnb occupancy rate. Using Mashvisor’s heatmap analysis tool, you can easily browse through the top ranking neighborhoods to find the best neighborhood for your next investment property.
Mashvisor’s Heatmap Analysis Tool
Step #2: Find an Investment Property
In the process of how to find a vacation home to buy, you will come across a lot of real estate metrics that can help you decide which property to invest in. An investment property analysis will produce property related metrics that give you an idea of how much profit you should expect once you buy that investment property. Mashvisor offers multiple tools that can help you locate and analyze vacation rental properties that suit your real estate investment needs. Check out the Property Finder and the Investment Property Calculator.
Step #3: Finance Your Vacation Home Investment
When it comes to financing a vacation home investment, there are different methods that you can use. Of course, buying a vacation home with cash is possible but is it advised? Read Financing Investment Properties: Buying a House in Cash vs Mortgage to learn about which option is best.
The most common mortgage loans used to finance a vacation rental property are:
1) Conforming Loans: These have less strict requirements than a rental property loan and require a down payment of 20%. 2) Hard Money Loans: Hard money lenders use private money to finance a real estate investment. Such loans have lenient qualification requirements but come with high fees.
Moreover, you can consider other options to finance a vacation home investment. If you want to know how to buy a vacation home with no money down, consider starting a real estate partnership where you take care of the rental property management and another partner secures a down payment to buy the property.
Step #4: Hire Vacation Rental Property Management
Managing a vacation rental property can be a complexity which is added to the cons of owning a vacation home. Most real estate investors own a vacation home far from where they live, which makes it difficult to manage the property themselves.
However, opting for professional property management services is a solution that many vacation property owners go for. For a service fee, your rental property will be taken care of- from minor tasks like preparing the property for the next Airbnb guest to bigger tasks like rental property maintenance.
Step #5: Calculate Your Rental Rate
As an Airbnb real estate investor you should determine your rental rate in order to calculate your cash flow. Tools like the vacation rental income calculator from Mashvisor can help you with that by providing comparable rental rates and estimating rental property costs based on other Airbnb rental properties in the area. The tool also allows you to adjust the numbers if they differ from the estimation. This way, you will know how much to charge while not only remaining competitive in your market but also making positive cash flow.
Step #6: Market Your Vacation Rental Property
Now that you know how to buy a vacation home, let us talk about how to market it to rent it out. If you have followed our advice on location and neighborhood metrics, then your vacation home has already passed the first checks for successful marketing.
Take professional photos of your vacation home and create an account on different short term rental websites like Airbnb, VRBO, and HomeAway. Remember that a well-managed Airbnb listing will give you a higher ranking on the website and will, therefore, attract more guests.
Related: Investing in Vacation Homes: Top 14 Expert Tips
Now that you know how to buy a vacation home and you know what you need to do to rent it out, get started right now with Mashvisor.
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