Vacation home rentals are becoming more profitable due to advances in technology and the rise of websites such as Airbnb and HomeAway. Real estate investors are buying vacation rentals that can generate substantial rental income. Some real estate investors might consider it as buying a second home for themselves that they mainly keep rented out. In any case, investing in real estate requires an acute attention to detail, especially for vacation home rentals.
So, what are vacation home rentals?
Vacation home rentals refers to renting out a fully furnished apartment, condo, or single family home on a short-term basis for tourists, business travelers, and other visitors. From visitors’ point of view, it is mainly considered an alternative to hotels. More travelers are considering this option as it offers more space while getting more bang for your buck. Vacation home rentals are likely to have a kitchen, a washer and dryer, and possibly a private pool.
When people hear of vacation rentals, they immediately think of a beach house in a year-round summer weather. That is only a small portion of the market. Vacation rentals can be apartments or lofts in downtown metropolitan city or a secluded cottage in a winter haven.
Here are a few key points to consider when investing in vacation home rentals:
As we all know, location is key in real estate investing. The location of vacation home rentals will dominate the nature of the business they generate. There are many online forums that discuss the best places to buy vacation rental property, consider reading about it and asking people who own vacation home rentals. Alternatively, to save time and efforts, you can read our blogs on the best places to buy a vacation home in Florida, California, or Texas.
Whether the real estate property is in a moderate weather area year-round or it experiences extreme weather in the summers and winters, it will have an impact on what your tenants or Airbnb guests will hope to get out of the rental property. Consider a location that you have visited and enjoyed your stay. Additionally, setting a specific location for your real estate investment property can help you narrow down your property search. Investing in an income property in a far location from you can has added cost as you will need property management to manage your property. However, this does not mean that you should immediately dismiss the idea of out-of-state real estate investing. To the contrary, conduct proper real estate market analysis to figure out the best markets for investing in vacation home rentals as investing away from home is sometimes way more profitable.
Decide what you seek out of the property on the long haul
Buying a vacation home is a dream come true for most people, and deciding on what you want out of a rental property over the long term can be a key factor in your investment decision.
Are you interested in selling the income property after having generated a specific sum of cash through rental income? Are you going to personally use it frequently? Are you interested in buying a property for any sentimental reasons?
Decide on your long-term goals and short-term goals for the investment property. Some investors try to find properties that they can also use as traditional long-term rentals, which is a great safety net if the tourism sector slows down in that specific area.
Factor in costs in all your investment decisions
The costs of purchasing a property, maintaining it, marketing it, and even cleaning it need to be factored in before your purchase. This will help clarify the profitability of the income property and whether it’s a financial burden or advantage. As a property owner, you will assume all the costs of the investment property, and you will take care of all utilities on a monthly basis. An exceptionally useful tool that can help you as an investor to make the right investment decisions related to vacation home rentals is Mashvisor’s Airbnb profit calculator, a type of an investment property calculator. The website offers an easy to use experience for beginner and experienced real estate investors to help them make financial decisions. You can compare investment properties and their details through an encompassing real estate analysis. As a real estate investor, it is your responsibility to have an idea of the rental income generated by the property and how seasons can affect it.
If you are looking to buy an investment property, we highly recommend Mashvisor’s real estate analysis; it includes metrics that will map out the future success of your investment property. The analysis will include metrics such as the occupancy rate for your property and the surrounding neighborhood, the cap rate, and the cash on cash return. You must study these metrics before buying a vacation home.
Figure out every little detail
If you have found a property and decided on the best financing plan, you need to get into every little detail of your vacation home rental. Weighing the options of managing your property is a make it or break it type decision. You need to determine the way your property will be managed; are you going to hire a professional property management firm to do it for you, or are you going to self-manage? Both options have costs and great benefits. There are many specifics to get into the vacation home rentals business. Consider your own needs when you travel and try to incorporate that in your own property, as it can help pave an outline for your success in the business. Furthermore, you should decide where to list your property to best appeal to your target audience.
Be the first tenant
Before listing your property on Airbnb or HomeAway, you should try out your investment property for a few days. This is a great tool for you as you can evaluate the needs of the Airbnb guest who will use your property as a home for a specific number of days. Vacation home rentals are usually fully furnished and beautifully decorated. During your stay, make a list of all that you are missing and make sure you provide these items for you guests.
Follow recent updates within the industry
The fast-paced technological advancements of today have, without a doubt, impacted the travel industry. Make sure you are subscribed to vacation rental blogs and online forums, as they can help you spot any trends or changes in the industry fast, thus making you well-prepared for any circumstances.
Buying vacation home rentals is an investment decision that requires much thought. The location of a property, the estimated value of it, the maintenance costs, and the management costs need to be considered thoroughly before making an investment decision.
To learn more about all aspects of real estate investing, continue reading our blog.