How to Buy Vacation Rental Property in 2020

Buying a vacation rental property can be a highly profitable approach to real estate investing. The high rental income that these investment properties generate makes them the perfect option for real estate investors who are looking for positive cash flow. So how to buy vacation rental property in 2020? And what should you keep in mind when purchasing a vacation rental investment property? In this article, we will outline the process of buying a vacation rental property in 2020 and share with you some valuable tips.

The Benefits of Buying a Vacation Rental Property

Buying vacation rental properties offers many advantages to real estate investors. Regardless of your level of experience, operating vacation rentals can be a great way to generate high cash flow. Here are some of the other benefits that you can expect from buying a vacation rental property in 2020:

Buying a vacation rental property gives you access to a second home that you can use for your own vacations.
The rental income that these investment properties generate is substantially higher than what you get from traditional rentals.
A vacation rental investment property can be a passive income investment as you have the option to hire a professional property manager.
You can benefit from a wide range of tax deductions.
Buying a vacation home to rent out provides a low-risk entry into real estate investing as it can be easily converted into a long term rental.

Now that you are aware of the benefits of buying a vacation rental property, let’s delve into how to buy vacation rental property in 2020.

How to Buy Vacation Rental Property in a Few Easy Steps

Buying an income property is a significant financial commitment. This is why it is important to abide by certain guidelines when you are looking for vacation rental properties for sale. Keep reading as we breakdown how to buy vacation rental property in 2020.

1- Pick the type of rental property that you want to invest in

Before delving into how to buy vacation rental property, you must first identify the type of vacation rental property that you want to buy. As you would expect, there are pros and cons to each property type. Here is a brief overview of some of the options that are available to you:

Condos: This is the most popular type of investment property for real estate investors. The amenities that condo buildings boast make them the preferred option of many vacationers. On the flip side, investing in condos involves dealing with HOA guidelines and fees.
Multifamily property: These are properties that contain multiple units. The rental income that these properties generate is fairly high. However, managing these rental properties is relatively difficult, especially for novice investors. It’s best to start with small multifamily homes of 2 to 4 units.
Cottages: This is a small home that is located in a rural area. Cottages are designed to accommodate vacationers who prefer the serenity of the woods or the calmness of the beach. These investment properties are easy to manage but their occupancy rate may be lower than other types of vacation rentals.

It is important to note that your options are not limited to these three types of property when you’re investing in vacation rental properties. Other investments that are worth considering include bungalows, villas, and studios.

2- Get your financing in order

how to buy vacation rental property - financing

The next step of the process should focus on exploring your options when it comes to financing a vacation home. Having a clear understanding of what each option offers will allow you to pick a method that fits your financial standing. Here are some of the investment property financing options that you should consider:

Conventional loans: These are the standard loans that fall under Fannie Mae and Freddie Mac regulations. When buying a vacation home, you will generally be expected to make a down payment of 10% to 20% and have a credit score of at least 680 points.
Home Equity Line of Credit: This is a financing method that enables you to leverage the existing equity in your primary residence. In fact, a HELOC loan allows real estate investors to tap into up to 90% of their home equity.
Alternative mortgage solutions: If you have a high credit score and a good working relationship with a local bank, then you might be able to apply for a personalized loan that fits your real estate investment objectives. Since these loans are kept on the bank’s portfolio, the terms can be extremely flexible.

3- Pick a good location

Location is everything in real estate. In fact, the location of a real estate investment is what determines its profitability and long-term viability. Naturally, you should focus on areas that boast a booming tourism sector as well as a high average rental income. Other factors to consider when looking for the ideal location include the overall health of the economy, the short-term rental laws, the quality of the weather, the employment rate, and proximity to essential amenities.

There is also a wide range of online real estate investment tools that can help you zero-in on the perfect location to invest in. The best example of this is Mashvisor’s real estate heatmap. This amazing tool employs a combination of rental property data and visual cues, which makes finding the best places to buy a vacation home a simple and intuitive process.

4- Narrow the search down to profitable investment properties

Identifying a vacation rental property for sale that can yield a good return on investment is one of the most critical steps of the process. Once you have settled on a location, start looking at investment properties that match what you are looking for. The simplest way to do this is to use Mashvisor’s Property Finder. This tool uses the latest AI technology and puts at your disposal several convenient filters that enable you to narrow the search down to your exact set of criteria. Moreover, the Property Finder grants you access to each property’s rental property calculator. This gives you the chance to explore a host of valuable vacation rental data and get an accurate ROI estimate.

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5- Get a home inspection and appraisal

Getting a professional inspection is crucial when making an offer. In fact, this is the only way to ensure the structural integrity of the vacation rental property. Additionally, the results of the inspection might reveal some minor issues, which could tilt the negotiations in your favor and force the seller to accept a lower offer. As for the appraisal, it helps determine the real value of the property and protects you from overpaying when you are buying a vacation home.

The Bottom Line

Buying a vacation rental property is an evergreen real estate investment strategy that will continue to yield good returns in 2020 and beyond. Going over the guidelines above should give you a clear idea of how the purchase process works. To ensure that everything goes smoothly, work with a real estate agent who specializes in vacation rentals.

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