In recent years, vacation rental properties have become a popular alternative to hotels for travelers around the world. At the same time, they have become an attractive investment niche for property investors looking to make money in real estate. With vacation rentals, investors have a more substantial opportunity to make more profit in a shorter period of time than they would with traditional rentals. Many in the real estate investor community now buy vacation homes as investment properties to rent out on short-term rental platforms such as Airbnb and VRBO in order to generate a quicker return on their investment through cash flow.
If you are interested in investing in real estate, a vacation rental property can be a smart first real estate investment. Vacation rentals are a good investment, if you know how to find the right ones of course! So, keep reading as we show you the fundamental steps to take and the necessary tools to use to find the best vacation rental investment for sale.
1) Find the Ideal City for Vacation Rental Investment
Location is everything in real estate investing. It determines every aspect of a real estate property, from its price to its profitability. Thus, when it comes to investing in vacation rentals, the first step you should take is to do research in order to find a good city for vacation rental investment.
A good city for buying vacation rental property as investment is one that has a strong demand for short-term rental properties. You should, therefore, look for a city that sees a strong influx of tourists throughout the year. Usually, the best places for vacation rental investment are located near beaches, mountains, national parks, lakes, and other attractions that make them popular tourist destinations. But, at the same time, you should make sure to find a city that has affordable property prices as the price you will pay for your property will have a significant impact on its profitability. You certainly don’t want to buy a vacation rental in a high-cost city and end up being unable to cover your property expenses.
The best way to research vacation rental investment markets is to look at vacation rental data for cities, such as Airbnb occupancy rate, Airbnb rental income, Airbnb cash on cash return, and Airbnb cap rate. You can find such data for the major US cities on our blog. To help you in your search for the ideal city for buying a vacation rental property, we’ve compiled a list of the best vacation rental investment locations in the US based on our Airbnb analytics. You can check it out here: 10 Best Places for Buying a Vacation Home in 2020.
2) Identify the Best Neighborhood
Once you have a general idea of where you want to buy a vacation rental investment property, you need to narrow it down further to the exact neighborhood. Even though the city you’ve chosen may be generally good for vacation rental investment, not all neighborhoods may be as good. You, therefore, need to perform neighborhood analysis before starting a vacation rental business in order to locate a top-performing neighborhood within that city.
The best way to do so is to use Mashvisor’s real estate heatmap. This is a market analysis tool that allows you to see how the different neighborhoods are performing in terms of the real estate metric you select. All you have to do is type in the city where you want to find a vacation rental investment and select one of the following metrics:
- Listing Price
- Airbnb Rental Income
- Airbnb Cash on Cash Return
- Airbnb Occupancy Rate
Then, the heatmap will highlight the neighborhoods that rank high for that metric in green and those that rank low in red. To locate the best neighborhood for vacation rental investment, you will have to identify an area on the map with relatively low property prices and a high Airbnb rental income, Airbnb cash on cash return, and Airbnb occupancy rate.
Related: Real Estate Heat Map: A Revolutionary Tool for Neighborhood Analysis
3) Start the Vacation Rental Property Search
After locating the best neighborhood for vacation rental investment, it’s time to move to the most exciting part of investing in vacation rentals: the property search. There could be dozens of rental properties listed for sale in a neighborhood; but in order to succeed in the vacation rental industry, you need to narrow them down to those that fit your budget and investment goals.
You can hire a real estate agent to help you find vacation rental properties that meet your requirements. But, a quicker and easier way is to use an online rental property finder. This is a tool that automatically finds investment properties for sale with a high return on investment based on the criteria you set. Mashvisor’s rental property finder allows you to customize your search criteria using a number of filters, including:
- Rental strategy
- Property Type
- Number of Bedrooms
- Number of Bathrooms
Once you customize your investment property search criteria, the tool scans the local housing market to find the best performing rental properties that match.
Related: How to Use Mashvisor’s Investment Property Deal Finder
4) Perform a Vacation Rental Property Investment Analysis
At this point, you are presented with a choice to invest in a number of vacation rental properties for sale. You now need to analyze each property to find the one with the highest potential for profits. In other words, you need to find out how much money each property will make with the Airbnb rental strategy. Doing this analysis manually on each property is time-consuming and painstaking, to say the least. The most effective way to do it is to use a rental property calculator, one of the best tools to find vacation rental investments.
Mashvisor’s rental property calculator does a complete investment analysis on all the income properties for sale and provides real estate investors with a comprehensive report containing all the important metrics they need to evaluate the profitability of each property. These metrics are pre-calculated based on vacation rental comps (with data validated using figures from real vacation rental hosts) and data from the local real estate market. They include:
- Rental Expenses
- Rental Income
- Cash Flow
- Cap Rate
- Cash on Cash Return
- Occupancy Rate
The calculator also provides a breakdown of the rental expenses. You can adjust any number as you see fit, and the calculator will redo the calculations to provide more accurate projections. You can then easily compare the different properties based on all the metrics above and finally decide which one is the most lucrative for vacation rental investment.
Related: The Best Vacation Rental Income Calculator for 2020
There you have it, finding a vacation rental investment in 4 simple steps. Follow these steps and you will find yourself making money with vacation rental property in no time. Sign up for a 7-day free trial with Mashvisor to get your hands on our tools and start searching for vacation rental investments anywhere in the US.