Are you looking for new investment opportunities this summer? We recommend investing in vacation rentals!
Owning a vacation home and renting it out for the short-term has gained momentum among property investors over the recent years, and for a good reason. The expansion of the economy has made it easier for families to go on vacation. In addition, people who have some disposable income are more willing to spend it on renting a house over staying in a hotel suite. As a result, real estate investors with vacation homes as investment properties are able to make lucrative profits from this trend.
Investing in vacation rentals is an optimal strategy for making money in real estate this summer. However, not every beginner real estate investor knows where to begin. Fortunately, starting a real estate investing business with vacation homes isn’t as difficult as someone would assume. Here’s our guide of 6 steps that anyone can grasp to start investing in vacation rentals.
Step 1: Check Your Finances
Nobody should even consider real estate investing until they have their finances in order. If you have mortgages, credit card payments, student loans and so on, taking care of these first is what makes the most sense for anyone thinking of buying an investment property. You don’t want more debt now, do you? Besides, this is the first thing that mortgage lenders will look at when you apply for an investment property financing program. The next thing any lending company will look at is your credit score, and many will only lend to property investors with a credit score of over 600.
Another thing to determine is the type of loan that you can afford. A conventional mortgage loan is the most common in the real estate investing business for beginner property investors. Other financing methods include hard money loans, private money loans, and owner financing, among others. Each method has a certain down payment, interest rate, and repayment schedule. Thus, before you start investing in vacation rentals, make sure you do your due diligence and find out which financing method is the best for you.
Related: Investment Property Financing: What Are the Best Options for Real Estate Investors?
Step 2: Check the Short-Term Rentals’ Regulations
After making sure that investing in vacation rentals is feasible based on your current financial situation, you can move on to step two. Just because some real estate investor made a fortune thanks to short-term rentals, doesn’t mean that you can invest in them just anywhere. As you should know, the location plays a major role in real estate investing, and the first thing to check is whether renting out your vacation home for the short-term is even legal in your city or area.
Regulations concerning short-term rentals differ from city to city. A real estate investor is advised to check with city officials about zoning requirements for short-term rental properties. Some areas will require you to apply for a business license or permit for investing in vacation rentals. If you’re planning on listing your investment property to rent on Airbnb, you should also review Airbnb laws and regulations in your city.
Step 3: Analyze the Real Estate Market
The next step also concerns the location of your rental property. Successful property investors (whether investing in long-term rentals or short-term rentals) always perform a real estate market analysis before buying an investment property. This is an essential step to determine how profitable investing in vacation rentals is – different locations yield different returns and you should always aim to invest in the best.
Related: Best Places to Invest in Real Estate Short-Term Vacation Rentals in 2018
To get accurate results regarding the profitability of a certain real estate market, use Mashvisor’s rental property calculator. This real estate investing tool eliminates the need for a market analysis by giving you readily calculated data of investment properties in the area of your choice. This data includes the median property price, rental income, cash on cash return, and cap rate (of both traditional and Airbnb investments). Therefore, a real estate investor can easily analyze and determine which generates a higher return on investment: investing in vacation rentals or traditional rentals.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Step 4: Analyze Investment Properties
Once you are confident that investing in vacation rentals is both legal and profitable in the area where you want to buy an investment property, it’s time to narrow down your focus. Now it’s time to start shopping for rental properties! Real estate investors perform a comparative market analysis in which they look for properties in the area similar to the one they’re targeting – these are known as “comps.” These will give you an insight into how this particular type of property is performing in the market. In addition, this will also allow property investors to determine if their rental property is really the best one in the market.
Wondering how to find such properties to perform an effective comparative market analysis? Here are Three Ways to Find Real Estate Comps!
If you’re looking for an easier way to find the best properties for investing in vacation rentals, you came to the right place. Real estate investors using Mashvisor have access to our Property Finder, a real estate investing tool that will turn your 3-month investment property search into 15 minutes! Simply insert your city/cities of choice and use different filters to set your criteria. Immediately, you’ll be given a list of the best properties in that said location that meet your criteria AND have the highest profitability in terms of cash on cash return! To learn more about how to use this tool, read this blog.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
Step 5: Set How Much to Charge for Rent
When investing in vacation rentals, setting the right amount for rent is important because it’ll determine your rental income which, in turn, plays a major part in generating positive cash flow. Your rental rate should be high enough to cover the expenses of running and maintaining your investment property, but not too high that it drives potential tenants away. Using real estate comps is a good way to find how much other vacation home investors are charging and set your own rent accordingly.
Keep in mind that the rental demand in the real estate market and seasonality should also be taken into account when setting the rent price. After all, most vacation rental properties are seasonal. During the hot season or when there’s a special event in the area, rental demand for short-term rentals will increase, meaning property investors can increase their rent price. However, remember to adjust the rent price during the low season to attract potential tenants.
Investing in Vacation Rentals – Conclusion
And there you have it – if you’re able to follow these steps, then there’s no reason stopping you from investing in vacation rentals. These can be lucrative investment properties to make money in real estate investing and, if done right, generate a passive rental income. If you’re seriously considering buying a vacation home to rent out, sign up with Mashvisor to start your search! If you have any questions about Mashvisor, click here to read our FAQs and learn about our tools.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
Are you investing in vacation rentals or know someone who is? Let us know how you started! Was it difficult? Do you think the information in this blog covers what beginner property investors need to know?