The New York Times mentioned that according to American Express, the average domestic tourist spends a number between $1,500-3,000 for a six-day trip. This figure is divided between accommodation, food, souvenirs, transportation, and entertainment. Nowadays, big hotel corporations are able to notice that the average American tourist is looking for an alternative accommodation option. Tourists are looking for more space for less cash. On the other side of the line, vacation rental investing is discovered by real estate investors to be the next supplier of alternative lodging.
So, why start vacation rental investing?
To clarify, vacation rental investing is an investment strategy that revolutionized the tourism accommodation business. A real estate investor finds a location that’s considered to be a popular destination for tourists, buys a property and makes it available to tourists to rent on a nightly or weekly basis for a marked-up price. Now, let’s scroll back to the reasons that drive real estate investors to vacation rental investing:
Higher rental income
To be exact, the numbers in real estate investing are not always so. It’s all about calculating risk, costs, profit, and loss. There are definitely important key points to keep in mind when investing. That being said, the expected income of a vacation home rental or a short-term rental is higher than that of a traditional rental. Why so? Well, as a property owner, you are not restricting the tenant or guest to rent on a monthly basis. Instead, you are giving him the option to take a weekly or nightly rate for a slightly higher price. Pretty fair to both parties!
Another reason that justifies the higher rental income with short-term rentals is the fact that you’re providing the tenant with a furnished apartment from A-to-Z more often than not. Additionally, accommodation venues of all types crank up their prices. If you’ve purchased a property and you’re looking to rent it short-term, just look up Airbnb accommodations near you and adjust your price.
If you’re a real estate investor who is thinking of vacation rental investing, you must calculate the penny and the dime. Not a bad thing in this case. As a result, you can calculate encompassing expenses for any potential investment property and set a reasonable price. Read this to know more about the ways you can lose rental income and how to avoid them: Real Estate Lesson #3: The Worst Ways You’ll Lose Rental Income.
You’ll own a vacation home
Isn’t having a vacation home or a second home something we all strive to achieve? Well, you got it! If you decide on a vacation home rental in a destination that you like to often visit, which is even better, you can visit it and make use of empty days on your property’s calendar.
Future home for you
While this may be a long-term benefit of vacation rental investing, it can be a smart way to prepare for future plans. If you’ve found a location that has a temperate climate and you enjoy visiting, why wait till you go gray to start investing in real estate? A smart property investor would acquire the property, mortgage it, and have tenants and guests cover the mortgage payments.
The earlier you buy property, the better
It’s a known fact that you shouldn’t wait to buy a property, you should buy a property and wait. Chances are prices aren’t getting any cheaper and land is not getting more available. If that’s the case now, imagine what it would be like two years from now, or even a decade. Any growing vacation destination will most likely be populated quickly. Meanwhile, if you wait, you would have missed your chance on an appreciating asset. Not to forget that vacation rental investing in income-producing assets and passive income generating assets is the best; it minimizes your effort and your investment property is covering its own costs.
How to ensure a profit when vacation rental investing?
For successful real estate investors, making a lucrative real estate deal comes naturally. However, if you’re a novice real estate investor and wish to venture into something as dense and crowded as vacation rental investing, you must equip yourself with knowledge about it.
Here are a few things to make note of to ensure profit through vacation rental investing:
Yes, it’s true that you’re investing in short-term rentals, but it doesn’t mean that you’re making a short-term investment. You might find the best places to buy vacation rental property and invest in them. However, these real estate investments are not going to be shoveling cash your way any time soon. You must acknowledge that there are mortgage payments, maintenance costs, and even unplanned costs. All these factors can lower your return on investment as a total. To find out more about other long-term real estate investment strategies, read this: Here Are the Best Long-Term Real Estate Investment Strategies.
Invest in the right location
Yes, you might find a house for sale near your favorite beach or favorite town, but after researching the location and knowing the Airbnb occupancy rate of that said location, you might deem it unfavorable for vacation rental investing. You want to look for a real estate market that’s dense in tourism all year-round to ensure the investment property is not vacant for long periods at a time.
When investing in a long-term rental, aesthetics might not be of such importance as opposed to investing in vacation home rentals, why so? You must keep in mind that people are choosing your investment property for a vacation accommodation. In other words, people are going to use your property for leisure. It’s a given that they want to see something that pleases the eye.
Conduct a real estate market analysis
Now, it’s true that you might think that this is a skippable step to ensuring a profitable investment. Think again! A real estate market analysis conducted by a sophisticated investment property calculator pays for itself through protecting you and your investment from costly mistakes. You can easily find out any figures associated with the property before purchasing it. These figures often include occupancy rate, cash on cash return, return on investment and a few others. With Mashvisor’s investment property calculator, you can do that and much more. Enjoy the 14-day free trial with Mashvisor by clicking here.
Professional property management
While this may not be the case for all real estate investors, it’s good to have the option to hire a property management company to take care of all the details for you. If you’ve ever run a vacation home rental or an Airbnb rental, you’ll definitely understand. The constant maintenance, check-ins, checkouts, and the many guests’ issues can turn the sanest. To find out more about property management companies, read this blog post: When Should Landlords opt for Professional Property Management?
Knowing how to make money in real estate is merely the first step in real estate investing. On the other hand, with vacation home rentals, it requires more attention to details. Not to forget the day-to-day operational management. For those who haven’t started real estate investing, start vacation rental investing and reap the benefits of both appreciation and rental income!
If you have more insights about vacation rental investing, feel free to leave a comment in the comment section below.