Wondering how to invest in real estate or even how to make money from real estate? Our one answer is: investing in vacation home rentals!
This blog is our guide on vacation home rentals for beginner real estate investors. Here, you will be able to learn whether buying a second home is a good real estate investment.
For some, investing in vacation home rentals has been the optimal rental strategy that gave them an opportunity for making money in real estate. However, we wrote this blog in order to let you know that there is more to this investment strategy than appears on the surface. Many real estate investors who have failed with this strategy thought that this type of investments is all about buying the property. They thought that buying the property and putting it out there on the market is how to make money from real estate.
What these real estate investors did not think about was the shortfalls of such investment strategy. Now, to be clear, we are not suggesting that this strategy is a bad investment. Instead, we are saying that before choosing to buy a second home as a vacation rental, you should consider the downsides. This, in fact, will be of great assistance in overcoming these cons and being prepared for any unexpected events.
So, now, before you decide whether to invest in vacation home rentals to rent out to tenants, take a look at the following pros and cons of this strategy:
The pros of investing in vacation home rentals
#1. The rental income: Obviously, you chose this real estate investment strategy to be making money in real estate. So, yes, it is a good choice as investing in vacation rentals is the optimal rental strategy to make money. That is especially true with the latest hype of Airbnb rentals. Many vacationers have turned to renting Airbnb properties rather than staying in hotels when traveling.
Aside from having a steady rental income, you can benefit from this rental income by repaying off the mortgage on your second home. As many real estate investors finance their business with a mortgage, a good vacation rental will pay for itself. That is, of course, as long as you manage to sustain a high occupancy rate.
#2. Property appreciation: Another awesome advantage of investing in vacation home rentals is appreciation. Just like any other type of property, a second home will also raise in value as long as you hold on to it. This means that by the time you decide to sell the property, it will have gone up in value. Therefore, the longer you keep it, the more you’ll be able to sell it for.
#3. Tax benefits: As vacation home rentals are considered a business, they are subject to tax advantages. Therefore, make sure to check with the taxation system in your state to find out what tax deductions apply to what rental expenses. Many real estate investors get deductions on property expenses, any losses, and sometimes even business-related travel.
#4. Learn about the business: Investing in real estate has more to it than just buying an investment property. Therefore, buying vacation home rentals is kind of a chill way to gradually learn about real estate investing as a whole. It includes investment property financing as well as property management and calculating profitability.
The cons of investing in vacation home rentals
After we have mentioned the advantages of investing in vacation home rentals, it sounds like it is all roses. Well, that’s not quite right. There are other aspects that many investors have neglected, and as a result incurred massive losses. So, here are some things you need to take into account before deciding to invest in vacation home rentals:
#1. It is a bit complicated: In order to get into this business, you will need to have, at least, the minimum level of education. No, we are not talking about a college degree, necessarily. But you will have to learn about what makes for the best real estate investments.
For this reason, as a vacation home rentals landlord, it makes sense that you learn how to buy investment properties with the help of the Airbnb profit calculator.
#2. Risks: It is only logical to assume that this real estate investment strategy holds higher risk rates than other investments. That is, of course, unless you take necessary precautions to prevent them. For example, if you are investing in beach house rentals, you should expect to have natural disasters occurring. Therefore, it would only make sense to get a good insurance in order to compensate for any losses resulting from such circumstances.
#3. Unexpected costs: For any landlord, having items broken or even stolen in his/her rental property is a nightmare. This means that you will have to replace some things which, obviously, costs money. As a result, it will all add up to your rental expenses. Eventually, you will have less in cash flow (which is the very reason you are investing in real estate in the first place).
To sum it up
At this point, you are thinking whether it is worth the hassle. We would say: Yes, it is. Investing in real estate is not all about the pros and cons. But rather, there are other factors that determine the success of an investment strategy. The major factor, in fact, is the return on investment.
To put it simply, the return on investment is a measure of how much you are expected to make in return for the money you have already invested. Therefore, this is the part where you want to have a higher rate of return on investment. The higher the figure, the better indicator of performance it is.
Investing in vacation home rentals with an Airbnb profit calculator
If you are wondering “Should I buy a vacation home?”, this is not something we should be telling you. However, we want to advise you to use the Airbnb profitability calculator for this matter. As we have said before, the return on investment is an essential measure when deciding to invest in real estate. The functions of this real estate investing tool go beyond mere metrics. This calculator will also tell a real estate investor where to invest in real estate. Basically, it does that on the basis of analyzing a location you are interested in to reveal the best place to buy a vacation home.
Another aspect that an Airbnb profitability calculator will cover is what type of investment property to invest in. For instance, vacation home rentals could be beach house rentals or even holiday homes for rent.
Other than that, it is up to you to decide whether to invest in vacation home rentals or not. But one thing you must keep in mind is that it takes proper planning to start making money from real estate, regardless of the investment strategy that you go with. To succeed with investing in vacation home rentals, you have to learn how to buy a vacation home the right way and how to rent it out to tenants.
If you are interested in checking out our Airbnb profitability calculator, start your free 14-day trial here!