The idea of investing in vacation home rentals has gained considerable attention in recent years, and for good reasons: the expansion of the economy, in addition to the arrival of the private accommodation sector, has made it considerably easier for families to go on more vacations of their own.
Quite simply, more and more people are finding that they have some disposable income, and they are apparently more motivated to spend it on vacation than anything else. Why is investing in vacation home rentals a good idea for real estate investors? How can real estate investors invest in vacation home rentals and where are the best places to find these types of properties?
Investing in vacation rental properties has become equal to some of today’s most productive investors’ strategies. Done correctly, there is no reason the right vacation rental can’t result in profitable cash flow for years to come. However, to get to that point, you must become skilled in the process. Let’s begin with a step by step guide for you to follow.
Step 1: Get your finances in order
Whether it’s lining up private money lenders or receiving loan approval from a traditional lending institution, you must have an idea of what you are working with before you commit to buying vacation home rentals. After all, there is no way of knowing what you can afford if you are otherwise unaware of your current financial standing. What types of rental properties can you even begin to purchase if you don’t know how much money you will have to work with?
Before you start this amazing attempt, save yourself a lot of time and headache by figuring out the financials. First and foremost, it’s not a bad idea to confirm that your credit report is where it should be. Is it good enough to receive a mortgage approval? And if you are not going through a traditional lender, now is the time to confirm how much money you will be able to borrow. At this point, you simply want to make sure that investing in vacation home rental properties is even possible for your current situation. If all is good, then let’s move on to the next step.
Step 2: LOCATION, LOCATION, LOCATION
We have all heard about this golden rule of real estate. Quite simply, the location of a property is more important than anything else; it’s the one thing that in the end can’t be changed. With that said, it shouldn’t surprise anyone to learn that the second step to investing in vacation home rentals deals with deciding on a location. Proceed to choose not only a city to invest in but a region within the city. The more specific you can be, the better. Mind due diligence and pay special attention to all the things that matter: market conditions, employment rate, weather, proximity to certain amenities, demand, inventory and a number of other factors. While you certainly need to consider the tangible financial aspects of a respective property, you can’t ignore the fact that your future purchase must be a rental strategy that is in a pleasant, accessible, desirable location to easily attract guests.
The best places to buy vacation home rentals are based on the desirability of the location, their affordability, your expected ROI, the local occupancy rates and the short-term market rental rates. Choose a place in a tourist area with not only nearby attractions that are easy to get to but also has upside investment potential. Some locations include Las Vegas due to its casinos, Nashville due to its music scene, Orlando due to Disneyworld and Pensacola due to its coastal location.
Step 3: Get financing and buy the vacation rental property
After you choose the location of the property and calculate its income and costs, you’ll have to pay for the property. You can buy it with all cash or finance the property. Vacation home rentals are usually financed with a conforming loan, a portfolio loan, a multifamily loan or in some cases a short-term loan such as a hard money loan or a bridge loan.
Step 4: Hire operational services
Once you buy your vacation rental property you need to think about property management. You can either manage it yourself or get someone else to do it for you, which will affect the services you need as well as your overall costs. For example, if you’re going to manage the property yourself then you need to hire operational services such as lawn care and cleaners. If you have a pool, you will need a separate company to clean and take care of the pool. Typical operational services include things like the following:
- Cleaning services
- Repairs and maintenance
- Exterior landscaping care
Step 5: List the unit on vacation rental websites
You want to rent the property as soon as possible to start making rental income and offset your ownership costs. You or your property management company will list the unit on websites to expose it to vacationers. These sites include Airbnb and VRBO, among others, and you can list it on more than one site to increase your renter pool.
The bottom line
Owning vacation home rentals has become a trend for real estate investors. Buying a vacation rental property can be a great way to invest in real estate, offset some homeownership expenses and still enjoy your favorite vacation spot from your own second home. These properties can yield high rents but can be seasonal and they also have costly expenses associated with them. Perform due diligence and real estate investment analysis for maximum success with vacation home rentals.